Since 2022, with the successive commissioning of new production capacity and the concurrent retreat of crude oil prices from their highs, prices for the majority of chemical products have persistently declined, leading domestic enterprises to adopt a volume-for-price strategy in the battle for market share, which consequently depressed overall profitability levels. Throughout 2024, prices for most chemical products have been consolidating at low levels, keeping corporate profitability under significant pressure. Following the anticipated introduction of subsequent work plans aimed at stabilizing growth, China Merchants Securities posits that certain outdated production capacities are expected to be phased out, leading to a marginal improvement in the industry's overall supply-demand dynamics and a potential enhancement in product profitability.
A Huatai Securities research report indicated that by the second half of 2025, pressured by weak demand and the tail-end of supply-side expansions, the profitability of bulk chemicals had hit a decadal low. Compared to the trough for basic chemicals at the end of 2015, this cyclical bottom also witnessed industry-wide losses or minimal profits for petrochemical products. After three years of depressed earnings, the growth rate of completed fixed asset investments in the chemical raw materials and products manufacturing sector turned negative starting June 2025, and according to Longzhong Information, there will be relatively few new capacity additions for bulk chemicals during 2026-2027.
Inventory levels in downstream sectors such as textiles, apparel, and rubber/plastic products have also been on a continuous decline, suggesting that the chemical raw materials and products industry is currently at an inflection point, transitioning from active destocking to passive inventory replenishment. Huatai Securities believes bulk chemicals are at a dual inflection point regarding both production capacity and inventory cycles, and with the anticipated recovery in domestic and international demand by 2026, the sector is poised to enter an upward phase.
Concurrently, given that China accounts for over half of global chemical sales volume, future corporate capital expenditure intensity is projected to decline significantly compared to the 2015-2025 period, while dividend payout ratios are expected to climb. GF Securities points out that as a typical cyclical industry, chemicals usually experience a 5-year cycle, progressing through four stages: "profit expansion -> capacity expansion -> profit bottoming -> capacity rationalization / improvement in demand expectations." Accompanied by a negative turn in capital expenditure growth, efforts against internal competition (anti-involution), overseas interest rate cuts, and domestic demand expansion, the firm is optimistic about the "dawn" for the chemical industry at the beginning of the 15th Five-Year Plan period.
Furthermore, the global pace of technological revolution continues to accelerate, presenting new opportunities driven by materials innovation. Related Hong Kong-listed stocks in the petrochemical industry chain include: SINOPEC CORP (00386), Oilserv (01033), SINOPEC SEG (02386), Shanghai Petrochemical (00338), SINOPEC KANTONS (00934), CHINA SANJIANG (02198), WUHAN YOUJI (02881), among others.
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