Orient: It is expected that the prosperity of finished oil products will maintain a good level. Regular refineries are expected to benefit from the dual increase in refining profits and market share of finished oil products.

Orient released a research report stating that with the release of the "Opinions on Promoting the High-Quality Development of Refined Oil Circulation", small refineries in the future will face greater standardization pressure. The improvement in refined oil profitability has actually affected the aromatic hydrocarbon industry chain. Large-scale refining-integrated semi-products including refined oil, aromatic hydrocarbons, by-products, etc. have benefited from this round of refined oil restoration. The bank believes that one of the most concerning issues in the market for refined oil is the unfavorable demand trend. However, the bank predicts that the prosperity of refined oil will be maintained at a good level, while sales share will gradually shift to formal channels. Formal refining companies are expected to benefit from both refining profits and refined oil shares. Key points from Orient: Small refineries become marginal cost Starting in 2021, China began to increase the regulation of the refined oil market, strengthening the coverage of sales tax collection in the production process. Starting from the end of 2024, Shandong adjusted the consumption tax deduction method for small refineries that use unconventional raw materials such as fuel oil, coupled with the increasing difficulty in purchasing sensitive oils such as Russian oil, leading to a significant increase in production costs. With the obvious widening of the price difference in domestic refined oil, the operating rate of small refineries has also significantly decreased, showing typical characteristics of marginal cost production capacity. The bank predicts that with the release of the "Opinions on Promoting the High-Quality Development of Refined Oil Circulation", small refineries will face greater standardization pressure in the future. Aromatic hydrocarbons and by-products follow the benefits The improvement in refined oil profitability has actually affected the aromatic hydrocarbon industry chain. Crude oil is processed through processing units, undergoing reformatting materials, mixing aromatics, mixing xylene (MX), and finally transforming into para-xylene (PX). Since mixed aromatics are an important component of blended gasoline, its price differential has always been strongly correlated with gasoline. PX, as a downstream product, is also affected after gasoline prices rise. In addition, the reduced operating rate of small refineries has led to a significant increase in prices of sulfur and petroleum coke. Therefore, including refined oil, aromatic hydrocarbons, by-products, and other large-scale integrated semi-products in the refining industry have benefited in this round of refined oil restoration. "Oil transformation" drives the contraction of refined oil supply The bank believes that one of the most concerning issues in the market for refined oil is the unfavorable demand trend. According to official statistics, the consumption of gasoline and diesel in China in 2024 decreased by 1.1% and 5.4% respectively compared to the previous year, reaching 177 million tons and 184 million tons. By 2030, these numbers may continue to decline to 143 million tons and 153 million tons, respectively. However, the bank analyzed the future situation of new refining projects and predicted that with the "oil transformation" and the withdrawal of small refineries, the future consumption and supply of refined oil will remain in a balanced state. The bank believes that this traditional industry changing its investment direction based on long-term goals and the strong transformation behavior of ShenZhen New Industries Biomedical Engineering may actually lead to a period of time where traditional industries achieve a good rate of return. Therefore, the bank predicts that the prosperity of refined oil will still be maintained at a good level. Risk warning Policy risks; lower-than-expected gasoline demand; refining project risks; changes in assumptions; risks of capacity statistics deviation.