The chemical industry is expected to see a gradual recovery in profitability as China's macroeconomic conditions improve and consumption stimulus policies take effect, according to a research report by Central China Securities. With slowing fixed-asset investment and rebounding demand, the sector's overall performance is likely to stabilize, offering selective investment opportunities in certain sub-sectors benefiting from cost advantages, supply constraints, and demand recovery. The firm maintains a "neutral" rating on the industry.
Key insights include: 1. **Demand Recovery & Supply Discipline**: Since late 2024, the decline in chemical industry profits has moderated, with agrochemicals, fluorochemicals, and new energy-related segments showing robust revenue growth due to optimized supply-demand dynamics. However, sectors like organic silicon, viscose, soda ash, and nylon faced profit pressures from overcapacity and intensified competition. 2. **Investment Slowdown**: Fixed-asset investment growth decelerated in 2023, with further declines in 2025, potentially easing overcapacity concerns. 3. **Regulatory Tailwinds**: Anti-overcapacity policies, stricter environmental/safety regulations, and carbon neutrality initiatives are expected to tighten supply-side constraints, fostering industry consolidation and high-quality development.
**Investment Focus**: - **Top Picks**: Integrated leaders such as Wanhua Chemical, Satellite Chemical, and Baofeng Energy. - **Sub-Sector Opportunities**: - Organic silicon and polyester filament (benefiting from supply-demand balance and self-regulation). - Phosphorus chemicals (driven by energy storage demand). - Biofuels (supported by dual-carbon policies).
**Risks**: Weak downstream demand, rapid capacity expansion, and volatile raw material prices.
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