[Market Insight Report] External geopolitical shocks combined with domestic policy support suggest the chemical industry is poised for a revaluation.

The three major A-share index benchmarks closed modestly higher today across the board. The Shanghai Composite Index rose 0.26%, the Shenzhen Component Index rose 0.36%, and the ChiNext Index rose 0.36%. Total trading volume on the Shanghai, Shenzhen, and Beijing markets exceeded 1.6 trillion yuan, representing a slight contraction in volume compared with the previous trading day. Most sector and industry subsectors closed higher. Gains were led by rare earths, chemical raw materials, agrochemical products, petroleum and petrochemicals, coal, minor metals, and agriculture and forestry animal husbandry sectors, while losses were led by insurance and banking sectors. For individual stocks, the number of rising stocks was close to 4,000, and more than a hundred shares hit the daily limit .

In the early hours of the 7th local time, Iran cited unnamed sources as saying that on that day an explosion occurred in the Jubail Industrial City in northeastern Saudi Arabia involving American capital, and it was the result of wide-scale attacks. The report said the Jubail Industrial City is one of the world’s important petrochemical production bases. Its annual output is about 60 million metric tons of petrochemical products, accounting for 6% to 8% of global total output. Multiple large petrochemical enterprises and projects are concentrated within the area. Among them, Saudi Basic Industries Corporation is one of the major investors in the industrial city. In addition, the Sadara project involving U.S. Dow Chemical Company, as well as the projects jointly invested in by Saudi Aramco and France’s TotalEnergies, are also located within this industrial city.

Domestically, on April 3, seven departments including the Ministry of Industry and Information Technology jointly issued the 《方案》 titled “Action Plan for Accelerating the Upgrade and Renovation of Outdated Petrochemical and Chemical Industry Units (2026–2029)” (hereinafter referred to as the “Plan”). The Plan proposes that by 2029, all upgrade and renovation tasks for outdated petrochemical and chemical units that were identified in 2025 in each region will be fully completed. After 2026, newly identified upgrade and renovation tasks will be advanced according to plan. The long-term working system of annual rolling baseline assessments and continuous improvement through renovation will be further refined, and the effects of standard guidance and policy coordination will be further leveraged.

CITIC Securities stated that after absorbing excess capacity over the past three years, the chemical industry entered last year a stage in which capital expenditures on fixed assets turned negative. On the demand side, with overseas demand providing traction, growth has been steady. We believe the market is likely to see a turnaround in the supply-demand balance of the chemical industry this year. Orient Securities said that in the long term, changes in the Middle East could lead Gulf countries to shift toward China in petrochemical and chemical investment. If the driving force for cooperation upgrades from economic factors to politics and even security, the development process through which China’s chemical companies gain momentum in the Middle East via the form of “capital going global” is expected to accelerate greatly, bringing enormous development opportunities.

CITIC Securities: The market is likely to see a turnaround in the supply-demand balance of the chemical industry this year

The chemical industry has gone through excess capacity absorption over the past three years, and last year it entered a stage in which capital expenditures on fixed assets turned negative. On the demand side, with overseas demand providing traction, growth has been steady. We believe the market is likely to see a turnaround in the supply-demand balance of the chemical industry this year. The main factors that previously interfered with our judgment were the downturn in domestic real-estate demand and a mismatch in overseas inventory cycles, which resulted in the turning point of the next inventory cycle not being obvious. However, the war between the U.S. and Iran could reset global inventory cycles. In the short term, supply could be cleared through a petroleum crisis, and in the subsequent period stronger replenishment demand is expected to arrive. As a result, global inventory cycles may move in sync, thereby driving a turnaround in the chemical industry’s supply-demand balance.

Orient Securities: China’s chemical companies are likely to face enormous development opportunities

The Middle East conflict will have short-, medium-, and long-term three-dimensional impacts on the basic chemicals and chemical products industries. In the short term, an interruption in navigation through the Strait of Hormuz causes a hard shortage of supply of petrochemical feedstocks. Although there is so-called “TACO” intervention, the supply shortfall remains unchanged. To safeguard finished oil, countries will reduce refinery operating loads, which further contracts the supply of chemical products such as olefins. On top of oil price increases, chemical product prices widen the price spreads further, and as inventories are consumed, the impact on prices may become increasingly significant. In the medium term, the conflict will push up the global natural gas price benchmark, significantly increasing carbon-to-chemical and energy costs in Europe, Japan, South Korea, and other places, while domestic costs remain relatively stable due to reliance on coal costs. This widens the competitiveness gap between domestic and foreign chemical industries. Meanwhile, the conflict highlights the security value of green energy, and it is expected to accelerate the development of green energy, green fuels, and related chemical materials (such as phosphorus chemical products, epoxy resins, polyether amines, etc.) worldwide. In the long term, changes in the Middle East may cause Gulf countries to shift toward China in the field of petrochemical and chemical investment. If the driving force for cooperation upgrades from economics to politics and even security, the development process in which China’s chemical companies gain momentum in the Middle East in the form of “capital going global” is expected to accelerate greatly, bringing enormous development opportunities.

Industrial Securities: China’s chemical companies will benefit from the reshaping of global chemical industry supply patterns

Global supply contraction may further increase production costs for some capacity that relies on natural gas as a source of energy and power. In addition, since the outbreak of the Middle East conflict, some overseas petrochemical facilities have announced force majeure, reduced production, or shutdowns. By contrast, China’s chemical companies have relatively more diverse sources of energy and raw materials. Their facility operating costs are also relatively lower and their integration level relatively higher, meaning they are expected to show stronger resilience to fluctuations in the external environment amid disruptions on the supply side. Therefore, they should benefit from the reshaping of global chemical industry supply patterns, and we continue to remain optimistic about China’s chemical enterprise leaders.

Tianfeng Securities: Key areas to focus on for chemical sub-industries include the following

For chemical sub-industries, key areas to focus on include the following: (1) Supply-demand reversal: policy and capital expenditure inflection points in 2025 have already appeared. The proposal of “anti-involution” provides expectations for subsequent improvements in industry profitability and a longer-term move toward healthier development. (2) Industrial restructuring: the chemical industry is entering a strategic window—overseas high-cost marginal capacity exits and global chemical industry order is reshaped. (3) Value reassessment: the reshaping of the supply-demand pattern and upgrades in industrial attributes together are driving a reassessment of the value of traditional chemical enterprises, including reassessment of resource value and product attribute value.

Kaiyuan Securities: China’s chemical industry is expected to open up a new situation

With geopolitical volatility + strengthened constraints on the supply side, China’s chemical industry is expected to open up a new situation. Looking at the medium-term horizon, the end of the global inventory drawdown is approaching, and a “replenishment + demand recovery” rebound is promising. Affected by the energy crisis this round, global chemical enterprises’ operating rates have fallen significantly, but rigid end-demand has not disappeared. The industry is currently experiencing a large-scale inventory drawdown cycle across the globe. After geopolitical tensions ease, the global chemical industry will enter a deterministic replenishment upswing. Combined with market expectations for an end-demand recovery, chemical product profitability is expected to improve.

Bank of China Securities: Measures such as “anti-involution” are expected to catalyze the repair of the industry’s profit trough

Looking ahead to 2026, the industry’s capacity expansion in this round is nearly over. Measures such as “anti-involution” are expected to catalyze the repair of the industry’s profit trough. At the same time, new materials will benefit from rapid growth in downstream demand, and may start a new round of high-growth. In the short term, ongoing geopolitical conflicts will continue to affect the supply and transportation of crude oil and some petrochemical products, intensifying volatility. Pay attention to: 1) large-scale energy central state-owned enterprises; 2) leading companies such as coal chemical industry firms that have stable raw material supply and relatively low costs; 3) refined-chemical leaders with favorable supply-demand patterns and smooth cost pass-through. Recommended investment main lines in the medium and long term: 1) Traditional chemical leaders’ operational resilience stands out—by positioning in areas such as new materials, their competitiveness improves against the trend, and with the improvement of industry sentiment, they are expected to achieve double upgrades in earnings and valuation; 2) Ongoing catalysis from measures such as “anti-involution”—focus on sub-industries where supply-demand patterns continue to improve, including refining and chemicals, polyester, dyes, organosilicon, agrochemicals, refrigerants, phosphorus chemical products, and others; 3) Downstream industries develop rapidly, and companies in the new materials sector have broad development space.

(This article does not constitute any investment advice. Investors operate at their own risk, and all consequences shall be borne by them. The market has risks, and investment requires caution.)

（Source: Eastmoney Research Center）