China Galaxy Securities: Transformation and upgrade of petrochemical and chemical industry may need further promotion, focusing on two main themes of product high-end and greenization.

China Galaxy Securities released a research report stating that the petrochemical industry is a pillar industry of the national economy, and the transformation and upgrading need to be further promoted. At present, there are still obvious supply shortages in some high-end chemical new materials in China, and technological breakthroughs may be needed. Greenization is an effective way for the petrochemical industry in China to achieve sustainable development. The chemical recycling of waste plastics is seen as a blue ocean market in the background of continuous progress in low-carbon processes. Based on the main direction of China's petrochemical industry transformation and upgrading, it is recommended to focus on two investment themes: product upgrading and greenization. Key points from China Galaxy Securities: The petrochemical industry is large but not strong, and transformation and upgrading need to be deepened. The petrochemical industry is a pillar industry of the national economy, with a large economic scale, a long industrial chain, a wide variety of products, and extensive coverage. It is essential for the stability and security of the industry chain, green and low-carbon development, and improvement of people's livelihoods. For many years, China has maintained its position as the world's second-largest petrochemical producer and the largest chemical producer, but facing the following challenges in its development. First, there is a structural contradiction in the over-supply of basic products and the insufficient supply of high-end specialty products. In particular, key basic chemical materials such as new energy materials, chemical new materials, and fine chemicals have gaps in some products, with a considerable proportion of products relying on imports, affecting the security of the industrial chain supply chain. Second, the petrochemical industry is an energy-intensive industry, with complex processes, various forms of energy use, and multiple sources of carbon dioxide emissions, making it a significant challenge to reduce carbon emissions under the "dual carbon" goal. The transformation and upgrading of the petrochemical industry are an inevitable requirement to develop new and higher-quality productive forces. With policies gradually strengthening, the industry's transformation and upgrading are expected to be deepened. Product upgrading: Extension of the chain and innovation drive domestic substitution. Chemical new materials are important supporting materials for high-end manufacturing and strategic emerging industries. They are the fastest-growing sector in the industry in terms of market demand and a crucial lever for the transformation and upgrading of the petrochemical industry towards high-quality development. Currently, there are still obvious supply shortages in some high-end chemical new materials in China, and technological breakthroughs may be needed. The development path of the chemical new materials industry in China can be mainly divided into the following two categories: first, traditional chemical industries based on existing product and technology accumulation, extend the chain and strengthen it, and improve the integrated layout of the industry chain, such as fluorine chemistry and phosphorus chemistry; second, high-tech enterprises focusing on terminal industrial demand, insisting on independent innovation, overcoming the key "bottlenecks" of raw materials, such as COC/COP, PI film, etc. Industrial greenization: Cultivate green new productive forces and practice energy saving and carbon reduction. Greenization is an effective way for the petrochemical industry in China to achieve sustainable development, including six aspects such as greenization of raw materials, catalysts, reaction engineering, energy, and products, as well as resource utilization. Among them, the green resource utilization of waste plastics, high molecular materials is a current hot topic for sustainable development. For example, developing a plastic circular economy system, strengthening the recycling and reuse of waste plastics, seeking alternatives can effectively reduce carbon emissions and excessive consumption of oil and gas resources. Looking ahead, in the context of the continuous advancement of the low-carbon process, the blue ocean market of chemical recycling of waste plastics is promising. In addition, industrial high-temperature pipelines have high energy consumption losses, reducing the heat loss of high-temperature pipelines is essential for improving energy utilization efficiency and reducing carbon emissions. Aerogel is an excellent insulation material, and the "dual carbon" goal is expected to open up a growth track for aerogels. Investment recommendations: Based on the main direction of China's petrochemical industry transformation and upgrading, it is recommended to focus on two investment themes. Theme 1: Product upgrading. Focus on companies like Zhejiang Juhua, Zhejiang Yonghe Refrigerant, Zhejiang Sanmei Chemical Industry, Yunnan Yuntianhua, Hubei Xingfa Chemicals Group, Hubei Yihua Chemical Industry, YONFER Agricultural Technology, Shenzhen Batian Ecotypic Engineering, Wuxi Acryl Technology, Rayitek Hi-Tech Film, etc. Theme 2: Industrial greenization. Focus on companies like Qingdao Huicheng Environmental Technology Group, Jiangxi Chenguang New Materials, Jiangxi Hungpai New Material, etc. Risk warning: Risks of significant increase in raw material prices; risks of lower-than-expected downstream demand; risks of projects not meeting production expectations; risks of escalating international trade frictions, etc.