Sinolink: Reiterating the "unified major market", the chemical industry continues to focus on preventing internal competition.

Sinolink releases research report stating that recent policies have once again emphasized the construction of a unified national market. This round of policy direction has provided a phased industry guidance, coupled with the fact that most of the chemical industry was at a price-profit bottom, with low inventory levels, and marginal changes easily magnifying production effects. Therefore, it is recommended to pay attention to the segmented tracks in the chemical industry that have already shown some resistance to internal competition, such as glyphosate, organosilicon, sweeteners, polyester filament bottle chips, and silicon metal. The future direction of policies and supply control remain relatively important, and it is recommended to track some major directions such as energy consumption control, new capacity control, and clearing out industries with unexpected obsolete capacity. Sinolink's main points are as follows: Event overview The magazine "Seeking Truth" published an important article by national leaders entitled "Deepening the Construction of a Unified National Market", emphasizing the need to build a unified national market, which is a major decision made by the central government. This is not only necessary to establish a new development pattern and promote high-quality development, but also to gain the initiative in international competition. As the world's second largest consumer market, China must effectively construct a unified national market to enhance our confidence in facing risks and challenges. The reiteration of "unified national market" indicates that tackling internal competition will continue to be a key focus of future policies. Since 2024, China has been paying close attention to the issue of oversupply in certain domestic industries, leading to targeted anti-internal competition policies. This year, there has been a significant increase in the frequency of anti-internal competition policies. Under top-down guidance, traditional cyclical industries in China have gradually begun to review or regulate industry supply. As a typical cyclical industry, the chemical industry has seen a significant increase in fixed asset investment over the past four years, leading to noticeable capacity pressure and making it a key focus of anti-internal competition policies. However, considering the complexity of the chemical industry, with a wide range of products and complex processes, the implementation of anti-internal competition measures in the chemical industry may take some time. Since the launch of anti-internal competition measures in various industries in July, the publication of the article "Deepening the Construction of a Unified National Market" has once again highlighted the continuity of policies and demonstrated sustained attention from top-level authorities to tackling internal competition. For the chemical industry, the subsequent impact of supply-side control measures is expected to be realized. Adhering to the requirements of "five unifications and one opening", the article directly addresses the key issues of internal competition in the industry. The article upholds the previous requirement of "five unifications and one opening", but specifically highlights the six major issues facing the industry. It calls for efforts to rectify low-price disorderly competition among enterprises, address irregularities in government procurement bidding, rectify irregularities in local investment attraction, promote the integration of domestic and foreign trade, fill in gaps in laws and regulations, and correct deviations in performance assessment. The article once again specifically mentions the need to rectify "low-price disorderly competition" and promote the orderly exit of "obsolete capacity", further implementing the policy requirements for supply-side control and sending a signal of policy continuity. Some industries have taken the lead in initiating "industry coordination", which may help improve industry profitability before facing strong supply constraints. After experiencing a three-year period of downward pressure following a peak in the industry cycle, risks in terms of capacity and performance realization have significantly increased. Prior to the implementation of policies, industry associations and companies had already begun discussions on controlling production volume and pricing. With time to naturally balance supply and demand, production and operation are starting to show initial signs of adjustment and increased competitive awareness. This creates a foundation and atmosphere for the subsequent implementation of policies. The current policy is expected to promote the re-coordination of industries that had already spontaneously resisted internal competition: 1) Industries have a relatively high degree of concentration, with leading companies having strong market influence and pricing power; 2) Demand can be sustainably absorbed; 3) Future capacity additions are relatively controllable and will not further exacerbate market competition or supply-demand pressures; 4) External factors such as exports have a minimal impact and will not create additional demand or price suppression. It is suggested to focus on segmented industries such as glyphosate, organosilicon, sweeteners, polyester filament bottle chips, and silicon metal. Continuous tracking of policy changes and implementation on the supply side is essential to assess long-term price trends and profit realization. The new industry cycle presents a dual impact of supply and demand, with stimulus policies leading to some improvement in demand. The subsequent trends in domestic circulation and export need to be continuously monitored. Furthermore, the impact of supply-side policies should be closely observed: 1) The implementation and execution of policies promoting orderly supply and fair competition in the industry; 2) The extent and timing of new capacity additions, and whether they will affect the existing supply-demand landscape; 3) Whether traditional policies for clearing excess supply on the supply side will be re-enacted, such as those related to energy consumption, environmental protection, and safety supervision; 4) Whether there will be significant changes in the external environment affecting exports and future international engagements. It is recommended to track major policies related to energy consumption control, new capacity control, and the orderly elimination of outdated capacities in industries that underperform. Risk warning: Risks of policies being implemented below expectations, fluctuations in export policies, lower-than-expected demand digestion, and increased competition among enterprises, among others.