The Zhitong Finance App learned that Donghai Securities released a research report saying that when reviewing the petrochemical industry cycle situation since 2000, in the context of economic globalization, the trend of various petrochemical indices is very close to and converge with the trend of crude oil, but with the development of anti-globalization, regional trends have separated. Since 2020, domestic ethylene production capacity has entered a second period of rapid growth, and China's new ethylene production capacity is expected to occupy a global cost advantage. As the Federal Reserve begins a cycle of interest rate cuts, the current petrochemical cycle has basically reached the bottom, entering a phase of capacity replacement and oil price exploration. In the future, as global demand improves, it is expected to enter a recovery phase in the second half of next year.

The main views of Donghai Securities are as follows:

Reviewing the petrochemical industry cycle since 2000

Generally, the petrochemical cycle is about 7 years. In the upward phase, extreme events will bring about a short-term downturn, but will not change the logic of cycle operation; during the downward phase, major negative events will accelerate the cycle operation, often accompanied by the accelerated clearance of old production capacity, and at the same time bring the next round of recovery closer to the beginning of the next round.

In the context of economic globalization, regional index trends are very close and converge with crude oil trends, but with anti-globalization development, regional trends have separated. Generally, due to the huge impact of the dollar return cycle on the global economy, the Fed's interest rate cut cycle often means the bottom of a petrochemical cycle.

China's new ethylene production capacity is expected to have a global cost advantage.

Since 2020, domestic ethylene production capacity has entered a second period of rapid growth. Compared with old international production capacity, China's main new/upgraded ethylene production capacity has many advantages, including lower operating costs (technological progress, industry 4.0), lower raw material costs (large-scale refining and cracking, heavy oil cracking, etc.), and shorter maintenance periods required for newer equipment, causing the average cash cost of newly built domestic ethylene production capacity to gradually shift to the left end of the cost curve.

According to estimates, by 2027, under the Brent oil price of 65 US dollars/barrel, China's average cash cost of added/modified ethylene production capacity is about 688 US dollars/ton, which is already in the left part of the cost curve. Some ethane cracking capacity costs have even reached the lowest range in the world. The cost advantage of MTO ethylene production capacity mainly depends on the coal price in the region where the installation is located and the scale advantage of the plant.

As the Federal Reserve begins a cycle of interest rate cuts, the current petrochemical cycle has basically reached the bottom, entering a phase of capacity replacement and oil price exploration. In the future, as global demand improves, it is expected to enter a recovery phase in the second half of next year.

Taken together, Brent oil prices are supported by $65 per barrel in the short term, and short-term geopolitical conflicts will still provide some support for oil prices; crude oil is greatly affected by demand in the long term. As the Federal Reserve cuts interest rates further, the risk of a crude oil pullback will increase; it is expected that Brent will fluctuate between 55 and 80 US dollars/barrel next year. In the short term, the domestic refining industry will benefit from the time difference in the price adjustment mechanism for refined oil products. On the downstream side, the filament production capacity and inventory cycle have basically reached the bottom. There is still a mismatch between production capacity and demand for polyolefins, and the overall rebound is still dependent on external demand repair.

Investment advice:

It is recommended to focus on domestic leaders with upstream and downstream integration of high-quality oil and gas resources and strong resilience to risks, such as CNPC (601857.SH) and Sinopec (600028.SH);

Satellite chemistry (002648.SZ) with standards relating to imported ethane-ethylene multi-advantage strong barriers;

Develop COTC industrial transformation and upgrading, with high yield and low cost Hengli Petrochemical (600346.SH);

Baofeng Energy (600989.SH), which has the advantage of large-scale coal-to-olefin;

Dongfang Shenghong (000301.SZ), Hengli Petrochemical (600346.SH), Rongsheng Petrochemical (002493.SZ), etc. actively lay out the new materials business to develop ethylene demand and profit;

The early overfall is characterized by low PE and PB, and is expected to benefit from the recovery in overseas filament demand in the future, such as Tongkun Co., Ltd. (601233.SH) and Xinfengming (603225.SH).

Risk warning: risk of capacity implementation falling short of expectations; risk of fluctuations in raw material prices; risk of geopolitical issues; downstream demand falling short of expectations.