China Industrial Research: Mid-term Outlook for the Chemical Industry in 2025 - The Continued Momentum Upwards.

Recently, the Industrial Research Institute released a mid-term outlook research report on the chemical industry. In the first half of the year, the chemical industry faced significant operating pressure, with prices of raw materials such as crude oil and coal falling, leading to a general decline in chemical prices. New production capacity continued to be put into operation, and the overall supply-demand situation remained relatively loose. Looking ahead to the second half of the year, the chemical industry is accumulating strength for an upward trend under the "low price-low inventory" situation. The main points of the Industrial Research Institute are as follows: In the first half of the year, product prices fell, supply was abundant, and profits declined slightly. With raw material prices such as crude oil and coal falling, chemical prices saw a general decline in the first half of the year, with new production capacity being continuously put into operation, leading to an overall loose supply-demand situation. As a result, profit margins in the chemical industry saw a slight decline, with the industry average profit margin at 2.6% in the first four months of 2025, continuing a downward trend. On the supply side, the operating rates of chemical facilities were generally low, with average operating rates for products such as coking, BDO, and propane dehydrogenation to propylene below 70%. Chemical companies were cautious in their investments, with new capacity additions slowing down. In the first four months of 2025, fixed asset investment in the chemical raw materials and products industry increased by 1.3% year-on-year, reaching a new low since 2020. On the demand side, domestic demand for finished oil products was weak, while the construction and textile industries showed moderate recovery, and exports remained stable. Looking ahead to the second half of the year, under the "low price-low inventory" situation, the chemical industry is accumulating strength for an upward trend. In terms of prices, many chemical products have reached the cost line, and companies are increasingly willing to cope with the sluggish market by shutting down for maintenance or reducing production. It is expected that there will be limited room for further price reductions in the future. For some small varieties with higher market concentration, prices have started to rise due to supply constraints. In terms of inventory, after more than 2 years of adjustment, industry inventory levels are at a low level. With continued adjustments on the supply side and moderate demand growth, it is expected that some chemical products will reach a supply-demand balance in the second half of the year, leading to a rebound in prices and profits. In addition, chemical companies are continuing to increase their investment in research and development, striving to break through to the "high-end" sector. Some high-end polyolefins and high-performance fibers have already made breakthroughs, and as the results of "high-end" efforts emerge, the chemical industry will emerge from its downturn. Key industries: Petrochemical refining: The current average operating rate in the industry is around 75%, with local refineries falling below 60%. The "ethylene-naphtha" price spread indicator suggests that the industry's profitability is at a low point. It is expected that the petrochemical refining industry will continue to be in an adjustment period in the second half of the year, with accelerated elimination and integration of outdated capacity. During this process, attention should be paid to potential risks posed by medium and small-sized local refinery enterprises on one hand, and business opportunities in the extension and complementation projects of large-scale integrated refining enterprises on the other hand. Chemical fiber: In the first four months of 2025, production increased by 10.6% year-on-year, higher than the demand growth rate; profit margins stood at 2.0%, 1.1 percentage points lower than the previous year's average. It is expected that profit margins in the chemical fiber industry will remain low in the second half of the year, with significant pressure on the supply side. Industry concentration is steadily increasing, with new chemical fiber capacity mainly coming from the top ten companies in the industry, while smaller enterprises are gradually exiting. Coal chemical industry: Modern coal chemical projects represented by coal-to-olefins and coal-to-natural gas are profitable, while traditional coal chemical projects such as coking and ammonia synthesis are expanding their losses due to persistently low downstream demand. It is expected that the coal chemical industry will face a favorable situation of declining costs in the second half of the year. However, with the international situation in turmoil, there may be significant fluctuations in oil and gas prices, and imports of light hydrocarbons such as ethane and propane may face interruptions. In this context, the advantages of low-cost and stable supply in coal-to-olefins and coal-to-natural gas projects will become more apparent. Therefore, it is advisable to moderately support high-quality coal-to-olefins and coal-to-natural gas projects. Soda ash: Currently, demand is weak, prices are continuously falling, and the natural soda ash process is expanding its market share due to cost advantages, squeezing out high-cost ammonia soda ash. It is expected that over the next 2 years, the supply of soda ash will grow significantly faster than demand, and the domestic soda ash market will still be in a situation of abundant supply. If soda ash prices continue to fall, small-scale enterprises with high costs face significant risks of losses, while natural soda ash projects with cost advantages are expected to continue to expand their market share.