Guosen's Investment Strategy for the Petrochemical Industry in 2025: Improving Petrochemical Prosperity and Rising Profits in the Resource Industry.

Guosen released a research report stating that since late September 2024, domestic monetary policy has been released intensively, and a new round of stimulus policies is expected to address issues such as weak consumption and insufficient demand. The effects of a package of incremental policies and existing stock policies are gradually emerging. It is expected that against the backdrop of falling raw material costs and gradual recovery of downstream demand, the supply and demand situation in the chemical industry is expected to improve, and business sentiment will rise. In 2025, it is recommended to focus on the improvement of the medium to long-term supply and demand situation and invest in chemical products with scarce resources, with a focus on investments in the fields of petroleum, natural gas, phosphorus chemicals, potash fertilizers, oil and fat chemicals, SAF, among others. Key points from Guosen: Review of the petrochemical industry in 2024 In 2024, due to factors such as weak market demand and oversupply, the overall PPI of the chemical industry showed a year-on-year decrease. In the first half of 2024, among the major sub-industries, the upstream industry (oil and gas exploration, energy processing) had a relatively high year-on-year increase in PPI, reflecting a tight global energy market supply. In the first half of 2024, the chemical industry as a whole was in a replenishment phase, with over 60% of listed chemical companies achieving year-on-year revenue growth from January to September 2024. However, due to factors such as weak demand, high energy and raw material costs, less than half of listed chemical companies achieved year-on-year growth in net profit attributable to shareholders. In terms of fixed investment, the fixed asset investment completion amount of major sub-industries in the chemical industry in 2024 showed a relatively stable year-on-year increase, with the speed of capital expenditure expansion slowing down compared to the peak in 2021. Outlook for petrochemical industry sub-sectors in 2025: Crude oil sector: with the onset of a global easing cycle and continuous economic repair, oil demand is gradually recovering. On the supply side, OPEC+ continues to maintain production cuts. Considering the high fiscal balance oil price cost of OPEC+ and the high new well cost of U.S. shale oil, oil prices are expected to remain in the middle to high range. It is expected that in 2025, Brent oil prices will center around $65-75 per barrel, while WTI oil prices will center around $60-70 per barrel. Petrochina and CNOOC Limited are recommended key investments. Natural gas sector: it is expected that natural gas consumption will reach around 450 billion cubic meters in 2025, with future consumption peaking at around 6000-7000 billion cubic meters, representing an increase of over 50%. In the future, there is significant growth potential in city gas, industrial, and gas power generation sectors. On the supply side, China's unconventional gas production continues to grow, becoming an important growth pole; imports of gas are also steadily increasing. The natural gas industry is expected to remain in a period of rapid growth in the medium to long term. Petrochina and CNOOC Limited are recommended investments. Potash fertilizer sector: the overseas potash fertilizer replenishment cycle has started, combined with the price demands of the international potash fertilizer oligopoly, global potash prices have rebounded from the bottom, with a mid-term price turning point appearing. There is a demand gap for potash fertilizer in China, with imports mainly coming from Canada, Russia, and Belarus, and in recent years, from Laos. Currently, the international potash fertilizer market is still dominated by a few companies. Refrigerant sector: in the background of tightening long-term chemical refrigerant quotas and boosted air conditioner production, the prosperity of R22 and R32 refrigerants is expected to continue, with a strong trend towards positive supply-demand conditions. Key companies in the second and third generation refrigerant quotas are expected to maintain a high level of profits in the long term. It is advised to focus on fluorine chemical industry leaders with complete industrial chains, complete infrastructure, and leading refrigerant quotas, with a focus on Zhejiang Juhua and Zhejiang Sanmei Chemical Industry. Phosphate chemical sector: considering the commissioning of in-progress capacities and the exit of outdated capacities, the incremental domestic supply of phosphate ore is limited in the short to medium term; on the demand side, traditional demand remains steady growth, with rapid growth in new downstream areas represented by lithium iron phosphate. The overall supply and demand balance of phosphate ore in China is expected to remain tight in the next three years. It is recommended to focus on Yunnan Yuntianhua and Hubei Xingfa Chemicals Group, which have abundant phosphate reserves. Oil and fat chemical sector: the main producers of palm oil are Indonesia and Malaysia, where supply-side factors such as natural weather, limited planting areas, and aging trees make it difficult to boost palm oil supply. Indonesia will implement B40 biodiesel starting in 2025, which will increase palm oil consumption, leading to an uptrend in palm oil prices. Zanyu Technology Group, with cost advantages in oil and fat chemicals, is recommended. Sustainable aviation fuel (SAF) sector: the EU clearly states that a mandatory 2% addition of SAF to aviation fuel will be required by 2025, and by 2050, the SAF addition ratio will gradually increase to 70%. Global SAF demand is expected to double to 2 million tons in 2025, with China also gradually commercializing SAF on a large scale, leading to rapid growth in global SAF demand in the medium to long term. Longyan Zhuoyue New Energy, which focuses on SAF, is recommended. Risk warning: fluctuations in raw material prices; fluctuations in product prices; lower-than-expected downstream demand, etc.