Zhongjin: Oil prices fluctuated widely in August, and the chemical price index continued to decline.

CICC released a research report stating that in August 2024, international oil prices experienced wide fluctuations, mainly due to concerns in the market about a recession triggered by weak macroeconomic data in the United States in July, a greater-than-expected decrease in EIA crude oil inventories, strengthening expectations of interest rate cuts in the United States, and the extension of OPEC production cuts. On the supply side, capital expenditures of basic chemical listed companies continued to decrease in the second quarter of 2024, combined with the exit of outdated overseas production capacity. It is expected that the pressure of new capacity in some sub-industries will gradually ease, while the downward trend in oil prices will alleviate midstream cost pressures. On the demand side, strong overseas demand is driving export growth, and with domestic demand gradually entering the traditional peak season, the demand for chemical products is expected to see marginal improvement. By the end of August 2024, the chemical price index had decreased by 3.54% on a monthly basis. Among the 196 chemical products tracked up to September 22, 25.5% had seen price increases compared to the previous month, while 40.3% had seen decreases, with liquid chlorine, NYMEX natural gas, paraquat, R134a, natural rubber, octanol, butyl rubber, synthetic ammonia, butadiene, and DMC solvents leading the gains. The year-on-year decline in PPI in August widened, with the CITIC basic chemical index underperforming the Shanghai and Shenzhen 300 index. Industrial PPI dropped by 1.8% year-on-year in August, and by 0.7% month-on-month. In August 2024, the CITIC basic chemical index had an excess return of -0.7ppt compared to the Shanghai and Shenzhen 300, with a cumulative excess return of 53.4ppt (since 2009). As of September 22, 2024, the chemical sector's price-to-book ratio (LF) was at 1.59x, at the historical valuation level (since 2005) of the 2.0th percentile. In terms of demand, the overall sentiment of downstream industries has differentiated. CITIC tracked the downstream demand of industries such as real estate, textile and apparel, automotive, home appliances, mobile phones & panels, agrochemicals, and CECEP Solar Energy batteries, with varying levels of sentiment. Specifically, real estate construction and sales showed narrowing year-on-year declines, while completions expanded; textile yarn, fabrics, and product exports increased; domestic automobile production and sales declined year-on-year, while sales of new energy vehicles rose; home appliance sales increased year-on-year, smartphone production increased; agrochemical sentiment continued to decline; CECEP Solar Energy battery production maintained growth. In terms of inventory, there were more replenishments than depletions. In August 2024, among the 39 products analyzed, 59.0% saw a month-on-month increase in inventory, while 33.3% saw a decrease. Among them, inventories of xylene, benzene, PA66, caustic soda, and compound fertilizer increased. Currently, the valuation and profitability of the basic chemical sector are at low levels. Considering that positive changes in supply are expected to occur gradually, it is recommended to invest in leading chemical companies with profit growth prospects and sub-industries with high concentration and potential for improved prosperity. Risk factors: Demand falling short of expectations, new capacity exceeding expectations, and significant price declines in products.