For the hot chemical sector this year, fund managers emphasize the importance of CTA arbitrage in practice, which is the cornerstone of allocation that transcends bull and bear markets.
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The stock market is ever-changing, and recently the volatility of commodities has strengthened, with subjective CTA arbitrage (managed futures arbitrage) opportunities in the chemical industry chain highlighting their advantages, becoming high-quality products with low correlation and high certainty in current asset allocation.
Industry Insights:
Cycle Reversal and Core Logic of the Chemical Industry Chain
Currently, we are optimistic about arbitrage opportunities in the chemical industry chain. The seemingly complex cycles and core logic of the industry chain can be broken down into three interconnected links: upstream, midstream, and downstream. Changes in the supply-demand pattern directly determine the generation and realization of arbitrage opportunities, which is also the core judgment basis for CTA arbitrage strategies.
The upstream of the chemical industry chain is the core of the cost side, primarily based on resources such as coal and crude oil, which serve as the basic raw materials for chemical production. Their price fluctuations directly transmit throughout the entire industry chain. Among them, crude oil, as the blood of industry, affects the PPI trend through cost-push channels.
According to historical data, for every 10% year-on-year increase in international oil prices, the year-on-year growth rate of domestic PPI increases by about 0.4 percentage points. As chemical products are a core component of PPI, their prices are highly correlated with PPI trends; therefore, a month-on-month positive turn in PPI often indicates that chemical prices are entering a recovery channel. The midstream of the industry chain is usually the core area where fund managers layout CTA industry chain arbitrage, with prices influenced by both upstream cost transmission and downstream demand. It is also the main concentration of cross-period and cross-variety arbitrage targets; the downstream of the industry chain is the demand side, which can be divided into traditional demand and emerging demand. Traditional demand mainly includes real estate, agriculture, and textiles, while emerging demand focuses on AI liquid cooling and new energy fields; changes in the warmth of the demand side will quickly transmit to the midstream, creating opportunities for price divergence.
From an industry cycle perspective, since 2021, the prices of chemical commodities have continued to adjust, and the supply-demand double bottom of the industry has basically been established. The downward cycle is about to end, officially entering an upward channel, initiating a &#34;Davis Double Play&#34; from valuation recovery to performance growth, which is the core background for investment in the chemical sector in 2026.
Looking at the supply side, in recent years, domestic new capacity has been strictly controlled, and backward capacity has been eliminated, while high-energy-consuming facilities in Europe have accelerated their exit, leading to a rebalancing phase in global chemical supply. It can be expected that leading enterprises will continue to regain pricing power; on the demand side, traditional demand is recovering moderately, with real estate completions warming up and driving demand for construction materials and chemical products, while spring plowing demand supports urea consumption. On the other hand, the explosion of AI computing power drives the rise of the liquid cooling sector, further boosting the demand for refrigerants and other varieties. In March, the outbreak of geopolitical conflicts in the Middle East directly led to a surge in global energy prices, which also directly affected the cost side of chemical products. Crude oil prices entered a phase of rapid increase, with domestic SC crude oil futures rising significantly alongside the international market, directly driving the rapid rise of midstream and downstream chemical products, bringing price divergence opportunities for industry chain arbitrage
The current industry has entered a new stage of &#34;stable volume and rising profits,&#34; where the price difference opportunities arising from structural supply and demand imbalances are the core layout logic of CTA arbitrage strategies.
Core Strategy: Investment and Arbitrage Opportunities
In the commodity market, more stable, verifiable, and sustainable trading opportunities often arise from the imbalances and rebalancing of price relationships within the industrial chain. The subjective CTA arbitrage strategy, primarily focused on the chemical industry chain, captures relatively certain returns during the process of &#34;industrial supply and demand mismatch&#34; to &#34;rebalancing.&#34; It utilizes quantitative models to assist in optimizing position management and trading efficiency, adapting to the structural opportunities under the current industry cycle reversal background.
In fact, commodity prices exist within a system influenced by supply and demand, inventory, profits, substitution relationships, seasonal patterns, and industrial policies. For the price differences between different months of the same variety, or the price ratios formed between different varieties due to industrial profits or substitution relationships, there is a relatively stable intrinsic anchoring logic. When the market deviates from this reasonable range due to emotions, liquidity, expectation differences, or temporary supply and demand mismatches, arbitrage opportunities arise. Therefore, in terms of investment structure, CTA arbitrage mainly focuses on two directions: inter-temporal and inter-variety, obtaining returns with greater safety margins and certainty in the form of arbitrage hedging.
From a strategic logic perspective, the core of inter-temporal arbitrage is to capture the price difference deviations of different term contracts for the same chemical product, relying on its seasonal supply and demand patterns: for example, &#34;strong near-month in peak season, strong far-month in off-season.&#34; By combining domestic PPI trends to predict price recovery rhythms, varieties with sufficient liquidity and clear boundaries of price difference fluctuations are selected for layout. In the first half of 2026, concentrated maintenance of PTA facilities will tighten the supply side, combined with a positive month-on-month PPI supporting strong near-month contract prices, while far-month contracts are influenced by long-term supply expectations, keeping prices stable. The strategy can earn price difference returns through a combination of &#34;long near-month, short far-month.&#34;
There are three core criteria for selecting varieties: first, sufficient liquidity, such as the daily trading volume of the PTA main contract consistently maintaining above 1 million lots; second, clear seasonal patterns, where price difference fluctuations can be predicted through supply and demand data and PPI trends; third, clear supply and demand logic, avoiding disorderly price difference fluctuations without fundamental support.
More importantly, the core of inter-variety arbitrage mainly involves pairing trades between different futures varieties that are strongly correlated in the upstream and downstream of the industrial chain or influenced by common factors, capturing returns from price difference convergence. This can be mainly divided into industrial profit arbitrage and industrial substitution arbitrage.
For inter-variety arbitrage, we will focus on in-depth research of the driving factors of the industrial chain's fundamentals; tracking changes in commodity demand, inventory levels, and de-stocking speeds, paying attention to upstream and downstream profit distribution and rebalancing, studying the basis between commodity futures and spot prices as well as the structure of warehouse receipts, looking for seasonal patterns, and collecting information on facility operations, maintenance, launches, and shutdowns, while keeping up with real-time import and export situations and potential global policy disturbances. Based on the above subjective judgments, quantitative tools will be used for historical percentile analysis, volatility and correlation monitoring, and tracking position crowding indicators for position allocation and optimization
Risk control is the core moat of subjective CTA arbitrage. We always adhere to the principle that &#34;risk control takes precedence over yield flexibility,&#34; strictly controlling the arbitrage positions of individual varieties within a reasonable range, diversifying across multiple varieties to reduce non-systematic risks, controlling positions based on the volatility of varieties and the VaR value of arbitrage against the basis, setting strict stop-loss and take-profit thresholds, and dynamically adjusting arbitrage strategies to avoid price spreads deviating beyond expectations.
Variety Case: Analysis of Chemical Arbitrage Varieties
In the selection of chemical arbitrage varieties, we can focus on the arbitrage opportunities related to the profit of methanol-to-olefins, centering around the production process of polypropylene from methanol fluidized reaction, leveraging the virtual factory production logic to explore structural price difference opportunities.
First, it is necessary to understand the production process logic of methanol-to-olefins. Globally, most countries primarily produce olefins from crude oil and natural gas, but China's situation of &#34;rich in coal, poor in oil, and scarce in gas&#34; necessitates the independent development of a new olefin production process. The realization of MTO technology allows coal to be converted into high-value-added olefin products, achieving efficient resource utilization from &#34;coal head to tail,&#34; making China's production of olefin products self-controllable.
The core of MTO arbitrage is based on the price difference between methanol and olefins (PP/PE) derived from the methanol fluidized reaction for polypropylene, capturing short-term deviations in industrial profits. From an industrial perspective, by 2026, domestic methanol fluidized polypropylene production capacity will be steadily released, with new capacity mainly concentrated in East and North China. The industry operating rate is expected to remain in a reasonable range of 83%-87%, with a stable increase on the supply side; the demand side benefits from the recovery in sectors such as plastic weaving, automotive parts, and new energy packaging, with polypropylene demand growth expected to reach 4.8%. The tight balance between supply and demand provides a solid foundation for arbitrage, meaning that when MTO production profits deviate, the flexible shutdown and startup switching of processing plants and the rapid balance on the supply and demand side can drive the production profit price difference to quickly return.
As the core raw material for MTO arbitrage, methanol is the key link connecting methanol fluidized PP arbitrage, and price fluctuations directly affect MTO processing fees and arbitrage profit margins. By 2026, the domestic methanol supply and demand pattern will show characteristics of &#34;clear demand increment, stable increase in supply.&#34; In addition to the demand increment brought by MTO for PP, traditional downstream demand is also steadily recovering, while increased exports further stimulate demand, supporting methanol prices to stabilize and rebound. We will focus on tracking MTO processing fees, operating rates, and raw material costs, dynamically adjusting arbitrage strategies in conjunction with marginal changes in industry supply and demand and volatility expectations, avoiding excessive concentration on a single variety, reducing portfolio volatility, and ensuring the stability of arbitrage returns.
Future Outlook:
Latest Macroeconomic Situation and Predictions for Chemical Arbitrage Opportunities
In the short term, under the current circumstances, we recommend that funds seek arbitrage strategies with higher certainty and safety margins for hedging.
In the medium to long term, we remain optimistic about arbitrage opportunities in the chemical sector, overall judging that the industry will continue its cyclical recovery trend, with arbitrage opportunities gradually shifting to the &#34;profit-driven phase,&#34; resonating with the pace of PPI turning positive on a month-on-month basis and rebounding on a year-on-year basis. In the second half of the year, the traditional peak season for the chemical industry will arrive, and the core varieties will continue to maintain a tight balance between supply and demand, with price increase expectations gradually being realized, with opportunities more concentrated on the strong and weak differentiation of sub-varieties, focusing on the price difference recovery opportunities along the industrial chain
At the same time, combined with PPI sub-item data, capture the arbitrage window brought by cost transmission.
In the medium to long term, the chemical industry continues to be in an upward channel, with core driving factors including: first, the supply side remains rigid, and the trend of domestic capacity control and the exit of outdated overseas capacity will not change; second, the demand side continues to upgrade, with traditional demand steadily recovering and emerging demand continuously exploding, becoming a new engine for industry growth, driving the continuous increase in demand for related chemical products; third, high-end substitution is accelerating, domestic chemical companies are upgrading their technology, gradually breaking the overseas monopoly in the field of new materials, and arbitrage opportunities in new material fields such as PEEK and electronic-grade PPO will continue to emerge, providing new layout directions for arbitrage strategies.
(This article was published in the Securities Market Weekly on March 28. The author is the fund manager and general manager of Cheese Investment. This article represents personal views and does not represent the position of the weekly.)

This article discusses the arbitrage strategies in the chemical sector, emphasizing the importance of CTA arbitrage in fund managers' investments. The cyclical reversal of the chemical industry chain and changes in the supply-demand pattern directly affect arbitrage opportunities. The linkage of upstream costs, downstream demand, and midstream prices is the core logic. Since 2021, the prices of chemical commodities have adjusted, establishing a double bottom in industry supply and demand, and it is expected to enter an upward channel, becoming a key background for investment in 2026

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