A seismic policy shift is set to reshape China’s polyether polyol industry: starting April 1, 2026, the country will revoke the Value-Added Tax (VAT) export rebate for polyether polyol—alongside photovoltaic (PV) products—per an official announcement from the Ministry of Finance and the State Taxation Administration. For an industry already navigating thin profit margins and overcapacity, this policy marks a critical turning point: short-term market volatility, eroded export competitiveness, and a long-term push toward high-end upgrades and emerging applications. As a foundational raw material for polyurethane foams, elastomers, and specialty chemicals, polyether polyol’s trajectory will ripple through downstream sectors spanning automotive, construction, new energy, and healthcare. This blog analyzes the policy’s immediate impacts, medium-term challenges, and long-term opportunities for manufacturers, exporters, and supply chain stakeholders.
Policy Breakdown: End of the Export Rebate Era
The cancellation of the VAT export rebate for polyether polyol signals the end of a key cost advantage that domestic producers have relied on to compete in global markets. For context:
Effective Date: April 1, 2026. Exports shipped before this date will still qualify for the rebate, creating a short-term "window of opportunity" for manufacturers.
Scope: The policy applies to polyether polyol in primary forms, aligning with broader adjustments to PV-related product rebates as part of China’s industrial restructuring strategy.
Immediate Market Reaction: The policy announcement has already triggered market movements. On January 10, several polyether factories suspended sales to assess the impact, while raw material propylene oxide prices rose by 100 yuan/ton on January 11—reflecting anticipation of tighter supply and higher production costs.
Short-Term Impact: Rush for Rebates & Price Volatility
In the lead-up to April 1, 2026, the polyether polyol market is poised for a period of intense activity driven by "last-minute rebate grabs" and domestic price adjustments:
Surge in Pre-Policy Exports: To capitalize on the final rebate opportunity, polyether exports are expected to rise significantly in Q1 2026. While exports have not yet seen a dramatic uptick, manufacturers are likely to prioritize overseas orders in the coming months, diverting supply from the domestic market.
Domestic Price Hikes: Domestic manufacturers are already leveraging the policy news to push up prices. This price momentum may trigger a wave of rigid demand replenishment from downstream buyers seeking to lock in costs before further increases.
Holiday-Driven Constraints: However, the sustainability of high prices is limited by the approaching Spring Festival holiday. Post-holiday demand typically softens, and buyers may adopt a wait-and-see approach, preventing excessive price spikes from becoming entrenched.
Medium-Term Challenge: Eroded Competitiveness & Export Declines
After April 1, the loss of the VAT export rebate will fundamentally reshape the polyether polyol market’s competitive landscape:
Lost Cost Advantage: The rebate cancellation directly increases export costs for domestic producers, eroding their ability to compete with global players (e.g., Covestro, BASF, Huntsman) that benefit from integrated supply chains or regional manufacturing hubs. This is expected to lead to a significant drop in polyether polyol exports.
Intensified Domestic Competition: With overseas markets becoming less accessible, exporters will likely shift supply to the domestic market—exacerbating existing overcapacity. This could trigger price wars and further squeeze profit margins for smaller, less efficient producers.
Trade Tension Headwinds: The policy comes amid a backdrop of escalating global trade conflicts, which already create barriers to entry for Chinese chemical exports. The loss of the rebate will compound these challenges, making it harder for domestic polyether to gain traction in key international markets.
Long-Term Opportunity: Industry Upgrade & Emerging Applications
While the short- and medium-term outlook is challenging, the VAT rebate cancellation is a catalyst for much-needed industry transformation—pushing polyether polyol manufacturers toward higher-value, more resilient business models:
Product Innovation & Differentiation: Simple cost advantages will no longer suffice. Manufacturers will shift focus to developing high-performance, customized polyether polyol solutions (e.g., low-VOC variants, specialty grades for extreme environments) to compete on quality rather than price.
Industry Chain Integration: To offset cost increases, companies will pursue vertical integration—securing stable supplies of raw materials like propylene oxide or expanding into downstream polyurethane products. This integration will enhance operational efficiency and reduce exposure to market volatility.
Expansion into High-Growth Sectors: Downstream demand for polyether polyol will increasingly shift to emerging, high-value applications, including:
New energy vehicles (NEVs): For flexible foams in seating, rigid insulation for batteries, and elastomeric components.
Wind power: For composite materials and insulation in wind turbine blades.
5G communications: For encapsulation and thermal management materials.
Healthcare: For medical-grade foams and elastomers in devices and equipment.
Global Compliance & Sustainability: Aligning with international environmental regulations (e.g., REACH) and sustainability trends will become critical. Manufacturers that invest in eco-friendly production processes and low-carbon polyether grades will gain a competitive edge in both domestic and global markets.
Strategic Recommendations for Stakeholders
To navigate the policy-driven market shifts, polyether polyol stakeholders should adopt a balanced strategy focusing on short-term risk mitigation and long-term value creation:
For Manufacturers & Exporters
Optimize Pre-Policy Exports: Prioritize high-margin overseas orders in Q1 2026 to maximize rebate benefits, but avoid overcommitting capacity or compromising on payment terms.
Invest in R&D: Allocate resources to developing differentiated products that target emerging applications (e.g., NEVs, wind power). Partner with downstream customers to co-create solutions tailored to their specific needs.
Leverage Global Supply Chains: Forge partnerships with reliable suppliers that offer stable, high-quality polyether polyol—such as Achilles Chemical, whose products are exported to key markets (Vietnam, India, Saudi Arabia, Brazil) and serve as a trusted alternative to global leaders like Covestro and BASF.
Explore Regional Manufacturing: Consider establishing production or distribution hubs in emerging markets to bypass trade barriers and reduce export dependency.
For Downstream Buyers
Lock in Long-Term Contracts: Secure supply agreements with manufacturers offering consistent quality and competitive pricing, mitigating the risk of post-policy price volatility.
Adopt High-Performance Grades: Align with the industry’s upgrade trend by switching to advanced polyether polyol variants that enhance the performance of end products (e.g., improved heat resistance, durability) and support sustainability goals.
For Investors
Focus on Innovation-Driven Players: Prioritize companies investing in R&D, industry chain integration, and emerging applications—these will be the long-term winners of the industry reshaping.
Avoid Overcapacity Exposed Producers: Smaller manufacturers without differentiation or cost-control capabilities are likely to struggle, making them high-risk investments.
Conclusion: Turning Challenges into Growth Drivers
The cancellation of China’s VAT export rebate for polyether polyol is a double-edged sword: it creates short-term pain for exporters and intensifies domestic competition, but it also forces the industry to break free from its reliance on low-cost, low-value production. For manufacturers willing to innovate, integrate, and adapt, this policy is an opportunity to elevate their position in the global value chain—catering to the growing demand for high-performance, sustainable polyether solutions in emerging sectors.
As the industry evolves, partnering with suppliers that offer consistent quality, technical expertise, and global market experience will be critical. Trusted polyether polyol providers can help stakeholders navigate volatility, access customized solutions, and capitalize on the long-term growth opportunities presented by industry upgrading. With the right strategy, the polyether polyol market can emerge from this policy shift more resilient, innovative, and aligned with the needs of a rapidly changing global economy.
