CICC has released a research report stating that the petrochemical and chemical industry has endured a downturn lasting approximately three and a half years. With declining capital expenditures and accelerated exits of outdated overseas capacity, the firm believes the industry is entering a low-growth phase in production capacity. Meanwhile, anti-overcapacity measures, primarily through industry self-regulation, have accelerated profit recovery for related products. As favorable supply-side factors accumulate and demand from sectors like new energy grows rapidly, CICC anticipates an approaching cyclical turning point for the chemical industry.
Key insights from CICC include: 1. **Prolonged Downturn**: The chemical industry has faced a 3.5-year slump, with price indices and profit margins at historic lows. China’s chemical product price index has dropped 10.3% year-to-date in 2025, now at the 10.4th percentile since 2012. From 2H22 to 1-10M2025, the profit-to-revenue ratio for chemical raw materials and products stood at 4.14%, the lowest since 2017. 3Q25 gross and net margins for listed petrochemical firms were 15.9% and 4.6%, respectively, near multi-year lows.
2. **Low-Growth Capacity Phase**: Declining capital expenditures (-18.3% in 2024 and -10.1% in 3Q25 YoY) and faster exits of outdated overseas capacity (notably in Europe, Japan, and South Korea since 2023) signal a shift to subdued capacity expansion. Fixed assets + construction in progress grew just 6.8% YoY in 3Q25, the slowest since 1Q18. Anti-overcapacity efforts, including policy-driven controls on new capacity and industry-led production cuts, are aiding profit recovery.
3. **Resilient Demand**: Bulk chemical demand remains steady. Domestically, CICC’s macro team expects policy support to sustain ~5% GDP growth in 2026, mitigating real estate’s drag on chemical demand. Early-cycle products like chemical fibers (e.g., polyester filament, spandex, nylon filament) have seen robust consumption growth (2020-24), with fibers likely to remain a high-growth segment in 2026. Overseas, the U.S. manufacturing and property sectors remain pressured (PMI <50 since March 2025), while EU-27 industrial capacity utilization lingers near record lows. Recovery in U.S. housing could boost chemical demand.
4. **Valuations and Opportunities**: As of December 11, the basic chemicals (CITIC) sector traded at a P/B of 2.43x (46th percentile since 2012), with the CSI细分化工 index at 2.31x (43rd percentile). CICC highlights: - Undervalued industry leaders with significant 2026 profit potential. - Fiber chain (PTA/polyester filament, spandex), MDI, TDI, silicones, caprolactam, PET bottle chips, and acetic acid, alongside potassium fertilizer (limited new capacity) and refrigerants (quota-driven discipline). - Lithium battery materials benefiting from rapid demand growth. - New materials tied to AI and robotics.
**Risks**: Weaker-than-expected demand, volatile energy prices (crude/coal), and slower adoption in emerging industries.
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