China Securities Co., Ltd. has released a research report stating that the market has not fully priced in the extent of the rise in the central price level of oil. It advises investors to base their strategies on an upward trend in oil prices, guard against potential liquidity risks, and first allocate to assets with high certainty. From a medium-term perspective, China's chemical industry's relative competitive advantage globally is strengthening, and the market's increased risk appetite due to rising inflation is also more favorable for HALO assets with a solid profit foundation. After the oil price shock, it is advisable to seek core chemical assets that can smoothly pass on costs and possess enhanced relative competitive advantages. The main views of China Securities Co., Ltd. are as follows:
The UK may delay its refrigerant phase-down schedule, with leading companies recently initiating price hikes, indicating an impending overseas supply shortage. Recently, the UK's Department for Environment, Food and Rural Affairs announced a postponement of the subsequent phase-down steps stipulated by the F-Gas Regulation, revealing early signs of a supply shortage for third-generation refrigerants. Additionally, Beijer Ref UK, the UK's largest refrigeration and air conditioning wholesaler, announced a 60% price increase for R410a refrigerant. This increase will take effect from May 20, with R407c prices rising by 60%, and R134a and R32 prices increasing by 35% and 30%, respectively. The UK's decision to delay the F-Gas phase-down indicates that third-generation refrigerants still hold a significant market share locally and are difficult to replace in the short term by alternatives like fourth-generation refrigerants. Combined with recent price hikes by industry leaders, overseas demand for third-generation refrigerants is expected to remain strong through 2026. The UK has limited domestic refrigerant production capacity, relying heavily on imports. The essence of this delay is a postponement in the reduction of import volumes, suggesting that the period of high profitability for domestic third-generation refrigerant producers may be extended.
Chemical product exports in April showed structural differentiation: products like petrochemicals continued significant volume growth, while items affected by the implementation of prior tax rebate policies retreated as expected. 1) Petrochemicals: Olefins and downstream products maintained high growth rates. PE and PP year-on-year growth reached 484.1% and 123.5%; MMA, acrylic acid, and butadiene saw year-on-year growth of 66.1%, 126.4%, and 958.2%, respectively. 2) Polyurethanes: Export growth accelerated further. MDI and TDI year-on-year growth reached 43.7% and 92.0%; propylene oxide year-on-year growth was 695.7%. 3) Coal Chemicals: Most products showed both year-on-year and month-on-month increases. Methanol and ethylene glycol year-on-year growth reached 218.1% and 951.4%; acetic acid and vinyl acetate saw year-on-year growth of 34.2% and 763.9%, respectively. 4) Fluorochemicals: Fluorspar year-on-year growth reached 570.7%. 5) Silicone Chemicals: Industrial silicon continued year-on-year and month-on-month growth, with a year-on-year increase of 14.7%. 6) Chlor-Alkali: Most products showed both year-on-year and month-on-month increases. Calcium carbide and soda ash year-on-year growth reached 40.1% and 58.4%, respectively.
This week, the China Securities Co., Ltd. Chemical Industry Index stood at 111.11, down 2.97% month-on-month but up 45.00% year-on-year. The industry price percentile was at 39.44% of the past 10 years, down 1.86% month-on-month. The industry price spread percentile was at 8.23% of the past 10 years, down 2.21% month-on-month. The industry inventory percentile was at 83.53% of the past 5 years, up 1.45% month-on-month. The industry operating rate was 67.51%, down 0.17% month-on-month. Post-holiday price spreads have retreated somewhat, but industry feedback indicates strong overseas export inquiries. April export data overall exceeded expectations, continuing to support a positive outlook driven by chemical export demand.
A new round of chemical sector allocation opportunities is approaching. Previously, the market chose not to bet when oil price trends were unclear, grew weary of tracking oil prices, and assumed the cycle had ended regardless. It even saw a surge in risk appetite ahead of potential geopolitical events. However, time has passed, key shipping routes remain closed, an increasing number of oil wells are being forced shut, and the longer this persists, the harder restarting production becomes, exacerbating real-world problems. As low-priced crude and downstream inventories are consumed, rising upstream costs push prices higher, downstream essential demand supports procurement, and robust overseas export demand creates a combined fundamental backdrop poised to drive chemical stocks forward. The market will soon break its previous impression that "chemicals cannot pass on costs above $80," ultimately returning to supply and demand dynamics themselves. A new round of chemical sector allocation opportunities is approaching.
The release of the carbon neutrality assessment methodology adds another catalyst to the chemical supply side. The "Carbon Peak and Carbon Neutrality Comprehensive Evaluation and Assessment Measures" issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council have been formally implemented. The assessment measures specify that starting from the 2026 assessment cycle, provincial-level Party committees and governments will undergo comprehensive evaluation for carbon peak and carbon neutrality, with the assessment comprising control indicators and supporting indicators. Assessment results will serve as an important reference for the comprehensive evaluation, selection, appointment, and supervision of provincial-level leadership teams and relevant leading officials. It is believed that the entry of dual-carbon goals into the implementation phase signifies rising costs, accelerated industry consolidation, and faster industrial upgrading for typically high-energy-consumption sectors like chemicals.
Identifying targets with certain short- and medium-term EPS benefits. After this wave of correction, chemical stock prices have realigned with fundamentals. Due to significant overseas supply gaps and structural issues in domestic refined oil product supply guarantees, chemical product prices are expected to strengthen further. Although the market remains divided on long-term oil price projections, targets with certain short- and medium-term EPS benefits, represented by coal-based and gas-based chemical producers, deserve close attention.
Geopolitical conflicts highlight the revaluation of coal chemical energy security and opportunities for price increases and arbitrage in niche chemical products. 1) Oil-Coal Arbitrage: Geopolitical risks push oil prices higher, while most coal chemical products compete with routes using petroleum derivatives as feedstock. Against the backdrop of a widening oil-coal price spread, the coal-based product industry chain benefits significantly. 2) Energy Security Role of Xinjiang's Coal Chemical Industry: As geopolitical risks intensify, the production of oil and gas via coal chemical processes, based on coal resource endowment, will regain strategic national importance due to its significant economic advantages. Looking ahead, combined with the rapid development of new energy in Xinjiang, the region is poised to become China's energy hinterland. 3) Price Increase Opportunities from European Supply Chain Risks: Soaring European natural gas prices are pressuring chemical product costs. Additive-type niche products, with low cost proportions downstream and a good basis for price hikes, have already begun to see price increases, from food additives like methionine and vitamins to plastic additives like anti-aging agents.
Risk Analysis: (1) Crude oil prices may rise or fall beyond expectations; (2) Changes in industry competitive landscape; (3) Macroeconomic fluctuations and global economic downturn.
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