China Securities Co., Ltd. has released a research report stating that fluctuations in oil prices have impacted the market's timing for chemical sector allocation. The uncertainty surrounding oil prices has led downstream chemical players to operate with low inventory levels, causing spreads to narrow in the short term. However, as expectations for oil prices gradually solidify, inventory levels in crude oil and downstream products are expected to drive an upward inventory cycle. From a medium-term perspective, the core logic for China's chemical sector remains the scarcity of chemical assets, a scarcity that is further reinforced by disruptions in the petrochemical supply chain. The key points from the report are as follows.
Recent repeated U.S.-Iran conflicts have led to a rebound in oil prices. Following inventory destocking in downstream sectors during April and May, current downstream inventory levels are low. Once the market forms a stable expectation for the oil price trend, a round of inventory replenishment is likely to commence, potentially coinciding with the upcoming peak season. Judging from the performance of Q2 earnings previews, the market has reacted tepidly to the anticipated year-on-year earnings growth for interim reports, primarily due to concerns that significant inventory gains in Q2 may make it difficult for the chemical sector to show impressive sequential performance in Q3. Therefore, the report focuses on industries and individual stocks with potential for further sequential improvement in Q3. Beyond the inventory replenishment itself, the strength of the industry recovery warrants closer attention to factors such as domestic demand, external demand, and the impact of anti-internal competition.
Notable industries and stocks with potential for sequential improvement in Q3 include fluorine chemicals and some petrochemical companies. On July 9, 2026, the State Council issued a notice on the "15th Five-Year Plan" Carbon Peaking Action Plan. The plan identifies the "15th Five-Year" period as a critical and challenging phase for achieving carbon peaking. The overall requirements emphasize energy green and low-carbon transformation as the key, deeply promoting industrial greening and decarbonization, ensuring that by 2030, China's carbon dioxide emissions per unit of GDP decrease by 17% compared to 2025, and the share of non-fossil energy consumption reaches 25%, achieving the carbon peaking target on schedule.
The plan systematically deploys measures around accelerating the optimization and adjustment of the energy structure, promoting industrial greening and low-carbon transformation, deepening green and low-carbon transitions in key sectors, and strengthening support and safeguards. It also consolidates efforts by clarifying local responsibilities, promoting nationwide action, and deepening international cooperation, laying a solid foundation for achieving carbon neutrality.
The strategic importance of phosphorus resources has been significantly elevated, and the logic for domestic substitution continues to strengthen. Market focus on phosphorus-based materials began with lithium iron phosphate/ferric phosphate in 2021, when phosphorus was primarily associated with the phosphorus ore-phosphate fertilizer/glyphosate industrial chain. As the importance of phosphorus—encompassing mineral resources, fertilizer supply security, and competition in cutting-edge phosphorus-based materials—has grown, a landmark event was the U.S. and China successively listing phosphorus ore and elemental phosphorus as national strategic resources in February and June of this year, leading to a reassessment of its strategic status.
Products such as phosphorus trichloride, phosphorus pentachloride, and methyl/ethyl phosphite have been included in dual-use item export control lists. On one hand, against the backdrop of domestic substitution, the substitution of new phosphorus-based materials is expected to accelerate. On the other hand, demand from AI, semiconductors, and new energy is expected to create a synergistic effect. For instance, high-purity red phosphorus is a core raw material for indium phosphide substrates, high-purity yellow phosphorus can be used to produce electronic-grade phosphoric acid and battery-grade P2S5, and electronic-grade sodium hypophosphite serves as a core reducing agent for electroless nickel plating, widely used in the manufacturing of memory chips, PCBs, and high-end substrates.
The UK may delay its refrigerant phase-down schedule; recent leading price hikes indicate tightening overseas supply. Recently, the UK Department for Environment, Food and Rural Affairs announced a delay in the subsequent phase-down steps stipulated by the F-Gas regulations, with initial signs of a supply shortage for third-generation refrigerants emerging. Furthermore, Beijer Ref UK, the UK's largest refrigeration and air conditioning wholesaler, announced a 60% price increase for R407c refrigerant. This price adjustment, effective from May 20, includes a 60% increase for R407c, and 35% and 30% increases for R134a and R32, respectively.
The UK's announcement to delay the F-Gas phase-down schedule 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. Coupled with recent leading price hikes, demand for third-generation refrigerants in overseas markets in 2026 appears robust. The UK has limited domestic refrigerant production capacity and relies heavily on imports. The essence of this phase-down delay is a postponement of import cuts, suggesting that the period of high profitability for domestic third-generation refrigerants may be extended.
Identifying targets with clear short-term and medium-term EPS benefits. Following this wave of correction, chemical stock prices and fundamentals have realigned. Due to significant overseas supply gaps and structural issues related to domestic refined oil product supply security, chemical product prices are expected to strengthen. Although the market remains divided on long-term crude oil pricing, targets with clear short-term and medium-term EPS benefits, represented by coal-to-chemicals and gas-to-chemicals, deserve focused attention.
Risk analysis includes: (1) Crude oil prices rising or falling beyond expectations; (2) Changes in industry competitive landscape; (3) Macroeconomic fluctuations and global economic downturn.
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