Looking ahead to 2025, along with expectations of supply-side improvements and demand-side recovery, the chemical industry's boom is expected to pick up marginally, and there are good investment opportunities in some segments.
The Zhitong Finance App learned that Dongxing Securities released a research report saying that looking ahead to 2025, the domestic chemical industry's supply and demand pattern is expected to improve, and industry sentiment is expected to pick up marginally. Whether from the perspective of price cycles or marginal changes in the industry competition pattern, there are good investment opportunities in some chemical segments. The proposal focuses on three major investment directions: 1) sub-industries where the supply and demand pattern is expected to improve; 2) leading companies that are growing by capital expenditure expansion and R&D; and 3) some new high-end chemical materials that benefit from increased demand or continued promotion of domestic substitution.
Dongxing Securities's main views are as follows:
The boom in China's chemical industry is expected to pick up at the bottom, and the supply and demand pattern of the industry is expected to improve
In 2024, the chemical price index fluctuated slightly, energy and other costs were high, and the chemical industry was still in a low boom phase, but from the perspective of supply, demand, and inventory, the industry has experienced positive changes. Specifically, the supply-side chemical industry investment growth rate has begun to slow down. Production capacity investment for some products is coming to an end, and the impact of the industry's new production capacity investment on the supply side of the market may have abated; domestic and external demand conditions such as domestic manufacturing and product exports on the demand side have all improved, and chemical demand is expected to improve marginally; the inventory-side inventory cycle has ended, and stocks will be replenished slightly in the second half of 2024. Taken together, against the backdrop of anticipated improvements in the industry's supply and demand pattern, China's chemical industry boom is showing signs of bottoming up.
Looking ahead to 2025, along with expectations of supply-side improvements and demand-side recovery, the chemical industry's boom is expected to pick up marginally, and there are good investment opportunities in some segments. Therefore, it is recommended to focus on the following three investment directions:
1) Subsectors where the supply and demand pattern is expected to improve
Dongxing Securities believes that from the supply-side perspective, due to factors such as increased industry competition, declining market prices, and lower return on investment, the growth rate of fixed asset investment in the domestic chemical industry has slowed down, and production capacity investment for some products is coming to an end. Furthermore, the requirements of the national energy saving and carbon reduction policy are driving the gradual elimination and transformation of backward production capacity in relevant energy-intensive industries. Combined with the increase in production capacity loss for old chemicals from overseas; from the demand side, domestic manufacturing demand and export demand have improved markedly. Currently, domestic macroeconomic policies continue to gain strength, and the overall demand side is expected to continue to improve; in addition, specific policies such as large-scale equipment updates and consumer goods trade-in can also help drive demand for chemicals related to the automobile and home appliance industry chains. Therefore, the supply and demand pattern of some domestic chemical sub-industries is improving, and I am optimistic that the supply and demand pattern of sub-industries such as titanium dioxide, additives (amino acids and vitamins), chemical fiber, and refrigerants is expected to gradually improve.
2) Leading companies with capital expenditure expansion and R&D driven growth
After experiencing supply-side reforms, the concentration of the domestic chemical industry has greatly increased. In the future, due to policy restrictions on environmental protection, safety, energy consumption, etc., capital expenditure in the chemical industry is concentrated in leading companies. The investment direction is mainly to focus on expanding production capacity of original products, extending the industrial chain to downstream high-value-added products, or expanding into more high-barrier fine chemicals and new materials fields through R&D. The market share of a number of leading high-quality domestic companies is expected to continue to increase.
In terms of capital expenditure, the capital expenditure of listed companies in the chemical industry in the first 3 quarters of 2024 was still dominated by “three barrels of oil”, Wanhua Chemical, and several private refining and chemical companies. Listed companies with capital expenses of 10 billion yuan or more include “three barrels of oil” Wanhua Chemical, Rongsheng Petrochemical, Hengli Petrochemical, Dongfang Shenghong, etc.; in terms of R&D expenses, in addition to “three barrels of oil,” listed companies in the chemical industry with high R&D expenses in the first 3 quarters of 2024 include Rongsheng Petrochemical, Wanhua Chemical, Jinhua Technology, and Tongkun Co., Ltd.
3) Demand for some new materials has increased, and domestic substitution continues to advance
The development of some emerging industries is driving demand for new chemical materials. Terminal applications such as 5G, new displays, biomedicine, and automatic control have gradually entered large-scale development, spawning development opportunities for various supporting materials. As local enterprises continue to develop and catch up, China will continue to promote domestic substitution of high-end materials. Market demand for high-end new chemical materials represented by electronic chemical materials and ceramic materials is expected to increase, and it is also in a period of domestic replacement opportunities.
Target aspects: Longbai Group (002601.SZ), Hualu Hengsheng (600426.SH), Yangnong Chemical (600486.SH), Xinhecheng (002001.SZ), and National Porcelain Materials (300285.SZ) are recommended.
Risk warning: Demand for chemicals fell short of expectations; cost side bulk energy prices rose sharply; product prices fell sharply; exports fell sharply due to trade frictions; new production capacity investment in the supply-side industry exceeded expectations.
