Refining Anti-Involution, Industry Accelerates Head-Ordering

After four years of pressure in the industry, the reversal factors for the refining and chemical industry almost formed a perfect resonance in the second half of 2025.

Industry public information shows that at the end of November, the preliminary batch of China's 2026 crude oil import quotas was issued. Among them, Hengli Petrochemical's subsidiary Dalian Hengli, Rongsheng Petrochemical, and Shenghong Refining under Oriental Shenghong respectively received quotas of 3 million tons, 750,000 tons, and over 500,000 tons.

It is worth noting that compared to the dozens of "independent refineries" in Shandong and Henan that received quotas in the first batch in 2025,In 2026, only three leading private large-scale refineries have received quotas in the "early batch."——These companies all possess strong integrated facilities and industry synergy advantages, making them clearly "advanced production capacity."

Considering that the above-mentioned enterprises will have major capacity coming online in 2026, behind the "unequal allocation" of quotas lies an industry clearing driven by policy forces, with a path of "de-involution" towards industry consolidation becoming apparent.

In fact, since the second half of this year, the Ministry of Industry and Information Technology, industry associations, and leading enterprises have successively introduced policies and industry self-regulation measures, accelerating the trend of anti-involution in the refining industry.

When positive factors from all industries accumulate and resonate, is the dawn of the refining industry on the horizon in 2026?

Anti-involution policies are being intensively introduced.

On October 29 this year, the Ministry of Industry and Information Technology organized a seminar on the development of purified terephthalic acid (PTA) and bottle-grade polyester chips, focusing on preventing and mitigating the inward competition within the PTA and bottle-grade polyester chip industry to promote stable operations in the industry.

Among them, apart from industry associations, important privately-owned listed companies such as Yisheng Petrochemical under Hengyi Petrochemical, Hengli Petrochemical, Tongkun Group, Xinfengming, Sanfangxiang, and Dongfang Shenghong all attended the meeting. They were required to submit materials, including data on the capacity, output, efficiency (processing fees), and consumption of PTA and bottle-grade polyester chips for 2024 and the first three quarters of 2025, as well as information on projects under construction and suggestions for measures to prevent industry involution.

"A national-level meeting was held, which should be beneficial for leading enterprises, but small refining companies are having a tough time," a person from the refining industry in Jiangsu revealed to the reporter.Those relatively backward, early-built, high-energy-consuming capacities, as well as relatively weak enterprises that are small-scale and non-integrated, will be gradually phased out.。

From the perspective of industry supply structure, the majority of current PTA capacity is used to manufacture bottle-grade polyester chips, which are then used to produce polyester filament yarns and other textiles, as well as packaging films and other daily necessities. Since these products primarily meet the demand for basic living products, the demand for the polyester industry is closely related to the macroeconomy.

Since 2022, the overall global economic environment has been sluggish, and overall demand has been impacted. Additionally, various countries have been introducing environmental protection and carbon reduction measures, resulting in some substitution effects from new materials. The industry as a whole has entered a phase of stock competition.

On the other hand, around 2020, our country began to focus on the upstream of polyester, particularly on the import substitution of paraxylene (PX), and deployed a large number of large integrated facilities in an attempt to improve production efficiency, reduce production costs, and enhance product competitiveness. Therefore, from a global perspective, PX capacity meets domestic demand, while PTA capacity has shifted from meeting domestic demand to overcapacity.

Since the beginning of this year, to address the aforementioned situation, relevant authorities and industry associations in China have implemented legal constraints on emissions, issued guiding work plans, and organized industry-wide joint maintenance efforts to help the industry reverse the situation of overcapacity and losses.

On May 1st of this year, 13 mandatory national standards, including the "Energy Consumption Limits for Unit Products in the Refining and Chemical Industry" drafted and implemented by several state-owned enterprises in refining and chemicals, officially came into effect. This includes energy consumption limits for crude oil refining, PX, and PTA.

Industry insiders generally believe that the recently implemented energy consumption limits will accelerate the phase-out of outdated and small-scale production capacities.

Clearing outdated production capacity helps counter involution.

In reviewing the first batch of oil import quotas for 2025, aside from Hengli and Hongrun receiving 2 million tons and 1 million tons respectively, the remaining 3 million tons were almost evenly distributed among 11 "independent refineries" including those in Shandong and Henan, with the quotas being small and scattered.

Under this year's total quota of only 3.3 million tons in the "early batch," small "independent refineries" received almost no additional quota.

Compared to the mutual hindrance and slow clearing efficiency among industry giants in photovoltaics and lithium batteries over the past few years, the refining industry as a whole exhibits clear pyramid-shaped industry characteristics. Numerous "ground refining" enterprises are at the tail end, allowing for targeted elimination of outdated capacities.

At the end of September this year, the Ministry of Industry and Information Technology and six other departments released the "Work Plan for Stable Growth in the Petrochemical Industry (2025-2026)," which emphasizes the need to strengthen the planning and layout guidance of major petrochemical and modern coal chemical projects, strictly control new refining capacity, reasonably determine the scale and pace of new ethylene and paraxylene production capacity, and prevent the risk of excess capacity in the coal-to-methanol industry. This provides certain assurance for the refining industry to phase out outdated capacity and strengthen the entry thresholds for leading refining enterprises.

Coincidentally, in August of this year, the Jiangsu Provincial Department of Industry and Information Technology officially released the draft for public consultation on the "Catalog of Restrictions and Eliminations for the Chemical Industry Structure Adjustment in Jiangsu Province." The plan aims to restrict small-scale and low-value-added facilities to avoid resource waste and homogeneous competition. By limiting new investments in small facilities with high energy consumption and scattered production capacities, it can promote the refining and chemical industry to transition towards scale and intensification. At the same time, facilities subject to the "immediate elimination" standard will be phased out, focusing on the clearance of backward technology and low-efficiency capacities with high pollution risks.

Considering that nearly all of the quotas for the early batch in 2026 have been allocated to more environmentally friendly and integrated units, it is evident that the national level's determination to implement the established plan is exceptionally strong.

On the other hand, the energy storage demand and supply dynamics brought about by the global geopolitical situation have also reduced the cost pressures in the refining industry chain, making the expectations for an industry reversal more pronounced to some extent.

Even the by-product of the refining industry—sulfuric acid—has recently seen positive developments. Benefiting from the rapid growth in demand from the energy storage industry, the demand for sulfuric acid is expected to heat up quickly, and the price of sulfur has recently increased. The stock prices of leading sulfur producers, such as Rongsheng Petrochemical, have seen significant increases.

According to a research report by Open Source Securities, as of the first half of 2025, the total construction projects of listed companies in the basic chemical sector amount to 350.4 billion yuan, a year-on-year decrease of 10%. In the first eight months of 2025, the fixed asset investment completed in the manufacturing of chemical raw materials and chemical products decreased by 5.2% year-on-year, significantly down from the peak capital expenditure levels in the industry from 2020 to 2021. The capital expenditure and capacity investment cycle is nearing its end, and the supply landscape in the industry is slowly recovering.

The organization believes thatCurrently, the overall profit level of the chemical industry in China is relatively low, and most companies urgently need to improve the competitive landscape of the industry to achieve normal profitability. Amidst the wave of "anti-involution," a new round of supply-side structural reform is imperative.。