Western Securities Co.,Ltd. released a research report stating that the overall sentiment of the basic chemical industry is recovering from its bottom. The report suggests focusing on three main themes: ① Revaluation of coal chemical profits under the high oil-to-coal price ratio; ② The agricultural chemicals sector (potash fertilizer, phosphorus chemicals, pesticides) which combines resource barriers and export flexibility; ③ Semiconductor materials (photoresists, wet electronic chemicals, electronic specialty gases, etc.) benefiting from accelerated domestic substitution. The main views of Western Securities Co.,Ltd. are as follows:
The overall sentiment of the basic chemical industry is recovering from its bottom. In Q1 2026, the basic chemical sector achieved a year-on-year revenue increase of +9.26% and a year-on-year net profit attributable to shareholders increase of +13.41%. Both gross profit margin and net profit margin achieved year-on-year and quarter-on-quarter improvements for the first time since 2022, indicating the industry's profitability is emerging from the bottom. Looking at sub-sectors, new materials and agricultural chemicals are leading, while traditional bulk commodities are under pressure. In the agricultural chemicals sector, potash fertilizer revenue increased by +70.8% year-on-year and net profit by +122.75%, driven by both volume and price increases. In the new materials direction, segments like fluorine chemicals, polyurethane, and viscose performed notably well. In the coal chemicals sector, the realization of cost advantages led to year-on-year growth in net profit.
Coal Chemicals and Petrochemicals: High oil prices are reshaping the cost curve, optimizing the supply structure, benefiting the revaluation of stable oil and gas resources. The oil-to-coal price ratio is at a historically high level, significantly expanding the cost advantage of coal chemical routes (coal-to-oil, coal-to-olefins, coal-to-ethylene glycol, etc.). Coal chemical enterprises are benefiting from both a profit window and improved cash flow. Recommendations: Baofeng Energy, Hualu-Hengsheng. Suggested to watch: Satellite Chemical, Luxi Chemical, Chengzhi Co.,Ltd.. In petrochemicals, Middle East conflicts have led to a contraction in global crude oil supply. High oil prices are accelerating the exit of high-cost capacity. Industry leaders benefit from the revaluation as "globally stable suppliers."
Agricultural Chemicals: Fertilizers focus on resource barriers and export flexibility; Pesticides are bottoming out. Potash Fertilizer: Prices and profits are stable. Companies like Qinghai Salt Lake Industry and Zangge Mining possess valuable scarce resources. Monitor the progress of major contract negotiations. Phosphorus Chemicals: Short-term pressure from a sharp rise in sulfur prices, but integrated mining and chemical companies (Yuntianhua, Xingfa Group) have strong risk resistance. Significant premium for overseas phosphate fertilizers; if export restrictions ease, it could bring considerable flexibility. Nitrogen Fertilizer: Large price differentials between domestic and international markets. Monitor changes in inspection policies. Cost-leading enterprises like Hualu-Hengsheng and Luxi Chemical benefit from export windows opening. Pesticides: The pesticide technical price index is bottoming out, awaiting the start of a recovery cycle. As global pesticide restocking demand gradually releases and cost-side support strengthens, an upward recovery channel for the industry is brewing. Recommendation: Yangnong Chemical, an integrated pesticide industry leader with the Huludao base layout, possessing pro-cyclical flexibility (already covered). Suggested to watch: Rainbow Agrosciences, a growth-oriented pesticide leader whose logic is upgrading from export-driven to global brand and channel-driven.
Domestic substitution for upstream semiconductor materials is at a historic strategic window. The triple resonance of AI computing cluster expansion, advanced process upgrades, and overseas supply chain disruptions is driving the domestic substitution of upstream semiconductor materials from "mid-to-low-end substitution" to a critical breakthrough period of "attacking the high-end and entering major manufacturers." From substrates, precursors, specialty gases, photoresists and supporting additives, wet electronic chemicals, EMC slurries, polishing pads, and packaging materials related to chip fabrication, to fillers and fill resins related to high-frequency, high-speed CCL, and further to optical fiber materials, liquid cooling consumables, and specialty materials related to servers, materials supporting computing power are facing shortages and value revaluation across the entire industrial chain. Additionally, it is suggested to monitor the carbon fiber industry, which may be approaching an inflection point with breakthroughs in domestic high-end technology.
Risk warnings: Risks include significant fluctuations in raw material prices, weaker-than-expected downstream demand, overcapacity and intensified competition, export policies and geopolitical risks, semiconductor industry cyclical fluctuations, and slower-than-expected progress in domestic substitution.
Comments