Guosen: The petrochemical and chemical industry is expected to recover, and we are bullish on investment opportunities in resource products and other directions.

Guosen released a research report stating that the cyclical nature of the petrochemical industry is expected to recover by 2026. The current investment opportunities that are favored are in the resource sector, anti-concussion (avoiding excessive competition) sectors, and emerging industries. Based on this, the bank has selected the following sub-industries: oil and gas, potash, phosphoric chemicals, fluorine chemicals, sustainable aviation fuel (SAF), electronic resins, and some sub-industries in the chemical industry that avoid excessive competition. Guosen's main points are as follows: Industry Situation Petrochemicals is a cyclical industry, with the net profit of the SW basic chemical sector reaching a historical high in 2021, followed by a downward cycle. In 2024, the industry's net profit was only 52% of that in 2021. Since 2025, some sub-industries have led the way in recovery, with a 10.56% year-on-year increase in the net profit of the industry in the first three quarters, indicating a gradual stabilization and recovery of industry profits. Supply Side Cumulative fixed asset investment in the chemical raw materials and chemical products manufacturing industry turned negative in June 2025. Capital expenditures in the SW basic chemical industry and several sub-industries have been negative for multiple quarters, indicating that the industry's expansion cycle is nearing its end. In July, the "anti-concussion" policy was officially implemented to address low-price disorderly competition among enterprises and encourage the orderly exit of backward production capacity. The bank believes that in the future, there will be stricter approval of new chemical production capacity, and the elimination of outdated capacity (small scale, high energy consumption, high pollution) will accelerate. The problem of oversupply in the petrochemical industry will be effectively alleviated. Demand Side On the traditional demand side, with global central banks entering a period of interest rate cuts and pausing balance sheet reduction, under monetary and fiscal stimulus, the bank is optimistic that traditional demand for petrochemicals will see a moderate recovery. On the emerging demand side, from new energy to AI, key chemical materials have always been crucial for supporting industrial technological upgrades. Currently, the bank is optimistic about the rapid increase in new energy storage capacity driving demand for iron phosphate, PVDF for AI industry development, and high-frequency electronic resins for the aerospace industry's carbon reduction through SAF. Clearance of Overseas Chemical Production Capacity Due to factors such as high energy costs and outdated facilities, the European chemical industry has experienced a wave of plant closures this year. Currently, China's chemical product sales account for over 40% of the global market share, and the domestic petrochemical industry chain is well-established, with many chemical products being highly competitive globally. Against the background of accelerated overseas capacity clearance and expected demand recovery, the bank believes that Chinese chemical companies' global market share will continue to rise, and excess capacity will be rapidly absorbed.