The trend of improving chemical supply and demand is gaining momentum; the pattern of east rising and west falling may accelerate, and the chemical ETF allocation window is drawing attention.

Why is the trend of the East rising and the West declining accelerating, and how does this benefit Chinese enterprises?

Recently, due to conflicts between the US, Israel, and Iran, along with a global energy crisis and concerns over worldwide consumption, the chemical sector has experienced a significant correction. Experts highlight five key points:

1. Is high oil prices or high volatility in oil prices detrimental?

Short-term high volatility in oil prices, with sharp rises and falls, can disrupt the supply chain and consumption rhythm, causing downstream confusion. While it’s temporarily unfavorable, oil prices won’t remain highly volatile forever. Excessively high oil prices can boost inflation and end-product prices, potentially suppress discretionary consumption and slow demand growth. However, if oil prices stabilize at a medium-high level, chemical product prices tend to adjust smoothly. The core contradiction in the chemical industry in recent years is no longer demand-side, as downstream consumption growth—whether 7% or 3%—is not the main elastic factor. The real issue lies on the supply side.

2. What are the benefits of high oil prices?

In short, they accelerate the rise of the East and the decline of the West. The Russia-Ukraine conflict and increased energy costs have led to continuous exits of foreign companies from Europe and other regions. The current Middle East conflict causes global oil and gas supply disruptions, with countries like Europe and Japan potentially facing shortages. If oil and gas prices remain high over the long term, chemical companies in these regions will face significantly increased costs, likely leading to accelerated closures. This impact is permanent, with a profound and far-reaching supply shock. China, with its low electricity prices, cheap coal, and complete industrial chain, gains a competitive advantage amid this crisis.

3. What is the outlook for the future?

If high oil prices persist and stabilize, and global consumption returns to normal (or even slower than pre-conflict levels), downstream inventory replenishment will occur, profits will accelerate, and in the medium to long term, foreign capital will exit while the profitability center of Chinese chemical companies will rise and remain high. Conversely, if oil prices fall back and consumption continues to grow, chemical industry supply and demand will follow the original rhythm, with prices gradually increasing. Regardless of the scenario, the upward trend in the chemical sector remains unchanged.

4. What if there is a global recession?

Chemical product profits are at a bottom, leaving little room for further decline. If demand drops and prices do not rise, foreign investment will accelerate exiting, and high-cost domestic companies will be cleared out. The supply-demand balance will still tilt in favor of growth. Moreover, the government emphasizes anti-inflation measures; most chemical products are highly concentrated, and industry self-discipline will help mitigate consumption impacts, maintaining price increase potential.

5. What is the outlook for the chemical sector?

In the short term, market sentiment may be volatile, but in the medium to long term, fundamentals will prevail. The trend of supply and demand improvement in chemicals is inevitable. The rise of the East and decline of the West may accelerate, with industry prosperity increasing and significant price increase potential brewing. We remain confident in the long-term opportunities of the chemical cycle, as the broader environment favors sustained growth.

The Chemical ETF closely tracks the CSI Sub-Industry Chemical Theme Index, which is composed of seven sub-industry indices such as non-ferrous metals and machinery. These indices select large-cap, liquid listed companies within relevant sub-industries to reflect the overall performance of listed companies in those sectors.

Data shows that as of February 27, 2026, the top ten holdings of the CSI Sub-Industry Chemical Theme Index (000813) are Wanhua Chemical, Salt Lake Shares, Zangge Mining, Tianci Materials, Hualu Hengsheng, Yuntianhua, Juhua Shares, Hengli Petrochemical, Baofeng Energy, and Rongsheng Petrochemical, accounting for a total of 45.18% of the index.

Chemical ETF (159870), with over-the-counter connections (A: 014942; C: 014943; I: 022792).