Zhejiang Nhu Securities released research reports stating that since 2023, influenced by factors including the global economic downturn and continuous industry capacity expansion, the chemical industry's prosperity has gradually weakened. After two years of decline, the most pessimistic period has passed. From the supply side perspective, the capital expenditure growth rate of the chemical industry in 2024 is slowing down; from the demand side, real estate policies continue to be relaxed, restrictions on purchases and crediting policies are gradually loosened, coupled with the further expansion of new energy vehicle exports, the overseas demand for chemicals is further opening up, leading to a gradual improvement in the supply-demand situation. As the economy gradually recovers, with continuous optimization of supply-side reforms, the chemical sector is the strongest during the economic cycle, with global competitive advantages. The industry is expected to begin an upturn cycle of prosperity.

The prospect of the cyclical recovery is promising, with supply-side reforms helping the recovery of the economic cycle.

Since 2023, influenced by factors including the global economic downturn and continuous industry capacity expansion, the chemical industry's prosperity has gradually weakened.

As of September 10, 2024, the China Chemical Product Price Index (CCPI) closed at 4382 points, down 8.99% from the beginning of 2023 at 4815 points, with a historical percentile of 37.17% over the past five years. As of June 21, 2024, the PB ratio percentile of the basic chemical sector was at 27.24%, in a relatively low percentile.

After experiencing a two-year decline, the most pessimistic period for the chemical industry has passed. From the supply side perspective, the capital expenditure growth rate of the chemical industry in 2024 is slowing down; from the demand side, real estate policies continue to be relaxed, restrictions on purchases and crediting policies are gradually loosened, coupled with the further expansion of new energy vehicle exports, the overseas demand for chemicals is further opening up, leading to a gradual improvement in the supply-demand situation. As the economy gradually recovers, with continuous optimization of supply-side reforms, the chemical sector is the strongest during the economic cycle, with global competitive advantages. The industry is expected to begin an upturn cycle of prosperity.

Recommended to pay attention to cyclical symbols with good supply and demand patterns in the chemical industry, domestically substitutable high-quality new materials symbols, and high-dividend dividend symbols.

Recommended to pay attention to the bottom blue-chip symbols with a continuous improvement in the supply and demand situation: [Wanhua Chemical Group (600309.SH)] [Satellite Chemical (002648.SZ)] [Zhejiang Nhu (002001.SZ)] [Zhejiang Juhua (600160.SH)] [Xinfengming Group (603225.SH)] etc.

High-quality new material symbols for domestic substitution: [Cathay Biotech Inc. (688065.SH)] [Huaheng Biotechnology (688639.SH)] [Shandong Sinocera Functional Material (300285.SZ)] [Bailong Innovation Park (605016.SH)] etc.

High-dividend dividend symbols: [CNOOC (600938.SH)] [China Petroleum & Chemical Corporation (600028.SH)] [Meihua Holdings Group (600873.SH)] [Yunnan Yuntianhua (600096.SH)] etc.

In the first half of 2024, the chemical sector as a whole is under pressure, with increasing differentiation in the sector.

In the first half of 2024, the polyurethane sector had a revenue of 104.142 billion yuan, a year-on-year increase of 0.11%; net income attributable to the mother was 8.466 billion yuan, a year-on-year decrease of 4.78%; non-net profit attributable to the mother was 8.36 billion yuan, a year-on-year decrease of 3.00%. In the first half of the year, affected by market competition and fluctuations in product prices, performance declined year-on-year. In the long run, overseas supply-side contraction will help increase domestic polymeric MDI exports. With the implementation of the policy of replacing old with new, the stable development of downstream traditional industries and emerging industries such as new energy, demand is expected to achieve a substantial increase.

In the first half of 2024, the phosphate fertilizer and phosphorus chemical sector had a revenue of 64.557 billion yuan, a year-on-year decrease of 1.92%; net income attributable to the mother was 4.623 billion yuan, a year-on-year increase of 9.95%; non-net profit attributable to the mother was 4.444 billion yuan, a year-on-year decrease of 11.91%. In the first half of the year, phosphate ore prices remained high, and the demand for phosphate fertilizers and phosphorus chemicals industries remained stable. The prosperity continued to rise, and the performance showed good momentum. Due to environmental protection policies and other restrictions on new production capacity in the phosphorus chemical supply side, at the same time, the grade of phosphate ore has been declining year by year, the value-added pivotal phosphate ore prices are expected to remain high, and the country's high attention to food security issues, the demand for phosphate fertilizers continues to advance steadily, and high prosperity is expected to be maintained.

In the first half of 2024, the fluorine chemical sector had a revenue of 28.662 billion yuan, a year-on-year increase of 5.53%; net income attributable to the mother was 1.941 billion yuan, a year-on-year increase of 14.40%; non-net profit attributable to the mother was 1.808 billion yuan, a year-on-year increase of 19.14%. In the first half of the year, the industry's performance growth rate was considerable, and the prosperity level rose rapidly. With factors such as global demand recovery and the implementation of the January third-generation refrigerant quota policy driving, refrigerants continue to be in short supply, market concentration is increasing, and the prosperity is expected to improve.

In the first half of 2024, the coal chemical sector had a revenue of 67.467 billion yuan, a year-on-year increase of 15.25%; net income attributable to the mother was 5.547 billion yuan, a year-on-year increase of 116.14%; non-net profit attributable to the mother was 5.717 billion yuan, a year-on-year increase of 121.86%. In the first half of the year, the profitability of the coal chemical sector was restored, and performance is expected to gradually stabilize and recover. With the promotion of the policy of replacing old with new and the optimization of reducing costs and increasing efficiency on the supply side, the industry structure will be improved, and the prosperity is expected to continue to recover.

In the first half of 2024, the revenue of the pesticide sector was 76.429 billion yuan, a year-on-year decrease of 6.12%; the net profit attributable to the mother was 2.339 billion yuan, a year-on-year decrease of 55.07%; and the deducted net profit attributable to the mother was 1.924 billion yuan, a year-on-year decrease of 61.82%. In the first half of the year, due to factors such as fluctuations in agricultural product prices and a drop in raw material prices, the performance of the pesticide sector was under pressure. Looking ahead, with the trend of destocking, it is expected that the prices of chemical raw materials will return to a reasonable range, and corporate performance is expected to be restored.

In the first half of 2024, the revenue of the potash fertilizer sector was 12.675 billion yuan, a year-on-year decrease of 22.95%; the net profit attributable to the mother was 4.055 billion yuan, a year-on-year decrease of 50.57%; and the deducted net profit attributable to the mother was 3.974 billion yuan, a year-on-year decrease of 51.08%. In the first half of the year, intensified market competition led to a decline in potash chloride prices, putting pressure on industry performance. In the long run, the global supply growth rate of potash fertilizers is expected to slow down, and the prosperity of the agricultural market is expected to drive stable growth in potash fertilizer demand, helping to restore profitability and business sentiment.

In the first half of 2024, the revenue of the silicone sector was 22.688 billion yuan, a year-on-year increase of 7.38%; the net profit attributable to the mother was 1.75 billion yuan, a year-on-year decrease of 30.86%; and the deducted net profit attributable to the mother was 1.57 billion yuan, a year-on-year decrease of 30.35%. In the first half of the year, the expansion of the silicon market production capacity, coupled with the dual challenges of soft market demand and supply-demand imbalance, kept product prices at low levels, putting pressure on industry performance. In the long term, with capacity reduction and demand recovery, the silicone sector is expected to see a recovery.

In the first half of 2024, the revenue of the titanium dioxide sector was 22.66 billion yuan, a year-on-year increase of 9.71%; the net profit attributable to the mother was 2.216 billion yuan, a year-on-year increase of 49.08%; and the deducted net profit attributable to the mother was 2.113 billion yuan, a year-on-year decrease of 56.90%. Market capacity reduction and increased industry demand drove performance growth significantly.

Risk warning

1. Large price fluctuations in chemical products pose risks; 2. Risks of industry and regulatory policy changes; 3. Risks of force majeure and safety production; 4. Risks of escalated conflicts in certain global regions; 5. Risks of trade disputes between countries and regions; 6. Risks of sharp economic downturns.

Global risks include: 1. Large price fluctuations in chemical products pose risks; 2. Risks of industry and regulatory policy changes; 3. Risks of force majeure and safety production; 4. Risks of escalated conflicts in certain global regions; 5. Risks of trade disputes between countries and regions; 6. Risks of sharp economic downturns.