Huayuan Securities has released a research report indicating that the chemical industry's PPI has been declining for three consecutive years, with fixed asset investment growth falling to a historical low, suggesting that supply and demand are expected to gradually improve.
Conflict in the Middle East has disrupted raw material supplies, leading to forced production cuts within the industry, which is accelerating this supply-demand rebalancing.
With a significant surge in demand for AI computing power, the firm is optimistic about upstream materials such as CCL high-speed resin.
Given the geopolitical tensions in the Middle East, the bank anticipates that oil prices will continue to fluctuate at elevated levels, and the longer the Strait of Hormuz remains blocked, the higher the probability of further oil price increases.
Consequently, upstream assets warrant attention, with oil companies and oilfield service firms likely to benefit from high oil prices.
In the midstream refining and chemical sector, against a backdrop of gradually tightening feedstock, industry utilization rates may have further room to decline, potentially benefiting leading enterprises with lower costs and relatively ample raw material supplies.
For the downstream polyester filament segment, under conditions of coordinated industry production cuts, the price spread is expected to remain favorable.
Should downstream inventory restocking demand materialize in the future, the polyester filament sector's prosperity could see an uplift.
Huayuan Securities' key views are as follows:
Supply contraction and rising oil prices are driving industry price increases and a recovery in profitability.
The chemical industry's PPI has been on a downward trend for three years, with the sector's cyclical trough seen in 2025, leaving industry profits and capacity utilization at historically low levels.
Cumulative year-on-year growth in fixed asset investment for the industry declined by 8%.
Driven by national policies such as "anti-internal competition" and the elimination of outdated capacity in the second half of 2025, the industry's price index and profits bottomed out and began to recover in Q1 2026.
According to National Bureau of Statistics data, the chemical raw materials and products industry achieved revenue of 9.03 trillion yuan in 2025, a year-on-year increase of 0.5%, while total profits reached 376.6 billion yuan, down 7.3% year-on-year.
In Q1 2026, the industry's revenue was 2.25 trillion yuan, up 6.6% year-on-year, with total profits of 116.87 billion yuan, surging 54.5% year-on-year, indicating a broad-based recovery in industry profitability.
The five sub-sectors with the highest year-on-year growth in net profit attributable to shareholders in 26Q1 were viscose, film materials, potash fertilizer, nitrogen fertilizer, and textile chemicals, with profit growth rates of +843.8%, +289.2%, +131.1%, +82.7%, and +77.5%, respectively.
Oil & Gas Extraction: Domestic oil and gas production saw stable growth in Q1 2026, with rising volumes and prices driving the performance of the "big three" state-owned oil companies.
Domestic crude oil output reached 54.8 million tons, up 1.32% year-on-year, while natural gas output reached 68.07 billion cubic meters, up 3.18% year-on-year.
However, the oilfield services sector performed weakly but is expected to improve under high oil prices.
Refining & Chemicals: Refining and chemical enterprises saw a significant improvement in net profit attributable to shareholders, primarily due to substantial inventory gains from rising oil prices.
Utilization rates at major refineries continued to decline, and petrochemical product supply is expected to remain tight, potentially lifting the sector's prosperity, with leading companies possessing cost advantages likely to benefit.
Coal Chemical & Natural Gas Chemical: Geopolitical tensions in the Middle East have boosted the prosperity of China's coal chemical sector.
It is expected that the coal chemical industry chain will maintain high prosperity until the Strait of Hormuz is fully reopened.
Additionally, the rise in the oil price floor coupled with declining ethane prices has significantly improved the profitability of ethane-to-ethylene production.
It is anticipated that with oil prices fluctuating at high levels, the natural gas chemical sector will continue to maintain a relatively high level of prosperity.
Polyurethane: Since 2026, especially after the outbreak of conflict, MDI prices and profits have rebounded sharply.
Furthermore, affected by the conflict, the Middle Eastern MDI company Sadara was confirmed to have halted production in late March, intensifying the supply shock.
It is expected that MDI prices will continue to rise.
Polyester Filament: In 26Q1, industry profits for polyester filament improved significantly, driven by inventory gains.
Leading companies continue to maintain coordinated production cut strategies.
Looking ahead, as midstream and downstream inventory restocking demand increases, the prosperity of the polyester filament sector is expected to remain at a favorable level.
Viscose Staple Fiber: China's viscose staple fiber industry has seen no new capacity additions in recent years, while demand has grown steadily, leading to a fluctuating recovery in capacity utilization and profitability.
Since the beginning of 2026, the price spread between cotton and viscose staple fiber has been at a historically high level, which is expected to drive demand for viscose staple fiber and subsequently push its prices higher.
Feed Additives: Downstream demand for feed additives like vitamins is relatively inelastic.
Following the conflict and the blockade of the Strait of Hormuz, crude oil transportation was disrupted, affecting the supply of products like methionine, VA, and VE.
Coupled with downstream inventories at historical lows, this has led to significant price increases.
As the peak season for downstream livestock farming approaches, restocking demand is expected to be released gradually, potentially exacerbating market supply-demand imbalances and supporting further price increases.
Pesticides: Influenced by factors such as the cancellation of export VAT rebate policies, industry "anti-internal competition," and rising costs due to higher oil prices, the prices of herbicides, insecticides, and fungicides saw considerable increases in March-April 2026, largely returning to 2023 price levels.
High grain prices and restocking demand are expected to drive sustained improvement in the pesticide sector's prosperity.
Potash Fertilizer: Global potash fertilizer prices are experiencing the second major uptrend cycle in a decade.
Looking forward, with limited new global potash supply expected and demand projected to grow steadily, the supply-demand relationship remains tight, suggesting prices are more likely to rise than fall.
Phosphorus: Phosphate rock resources are scarce.
As of May 13, 2026, the price of Chinese phosphate rock was 1037.5 yuan/ton, near a ten-year high and difficult to decline.
Since the beginning of 2026, due to a significant increase in sulfur prices, the profitability of phosphate fertilizers has been at a historical low.
However, driven by downstream demand growth, losses in lithium iron phosphate (LFP) margins have narrowed.
CCL Resin: AI is driving a continuous upgrade in global computing power scale.
PCBs, as the foundation of computing power, are seeing increased performance requirements and rising demand for their upstream materials.
With NVIDIA's GPU iterations occurring every 1-2 years, corresponding CCL materials are expected to gradually upgrade from M4 (Low-loss) to M8 (Extreme Low Loss) and M10 (Ultra Extreme Low Loss), with the resin system upgrading from bismaleimide to materials like PPO, hydrocarbon, and PTFE.
Amid the rapid growth in demand for high-speed CCL, the domestic supply chain for high-end CCL resin is poised for a strategic opportunity.
Silicone: The silicone industry has seen significant capacity expansion in recent years.
2025 was the first year in recent times with no new capacity additions, potentially indicating the peak of silicone capacity expansion has passed.
Demand growth in downstream segments like new energy vehicles, 5G base stations, electronics, power, and photovoltaics is considerable.
In the context of "anti-internal competition," the profitability of the silicone industry has clearly recovered.
The gross profit per ton of silicone intermediates rose from a loss of around 2,000 yuan in September 2025 to a profit of nearly 2,000 yuan in February 2026.
As of May 15, 2026, the gross profit per ton of silicone intermediates remained at 1,634 yuan.
Risk warnings include fluctuations in raw material prices, demand falling short of expectations, and safety incident risks.
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