CITIC SEC: Energy storage drives the recovery of the upstream material market, and efforts to counter internal contraction will lead to a rebound in chemical product prices.

CITIC SEC released a research report stating that the chemical industry sector is currently mainly trading around three major themes: 1) Energy storage demand driving the improvement of the industry chain's prosperity, upstream lithium batteries and other materials' supply-demand structure is expected to be reshaped, with a focus on recommending materials related to new energy, lithium hexafluorophosphate, iron phosphate, and lithium iron phosphate industry chain; 2) The chemical industry is continuously combating overcapacity, with multiple industries initiating industry self-discipline, and chemical product prices are expected to bottom out and rebound; 3) The chemical industry itself is highly prosperous, and its main business is expected to maintain high growth. Key points from CITIC SEC include: Strong energy storage demand, continuously increasing demand for upstream lithium battery materials. According to statistics from GGII, from the first to third quarter of 2025, domestic energy storage lithium battery shipments reached 430GWh, exceeding 30% of the total for the whole of 2024. The total annual shipment volume is expected to reach 580GWh, a year-on-year increase of 67%. With the high growth in energy storage demand and the stimulus of lithium batteries before the subsidy is reduced, demand for upstream lithium battery materials is robust. Some products are in short supply, and prices are continuously rising: 1) Lithium hexafluorophosphate, according to BaiChuan information, as of November 7, 2025, the market price of this product reached 119,000 yuan, a year-on-year increase of 115.38%. Currently, there is a mismatch between supply and demand for this product, with high concentration giving downstream strong bargaining power, indicating that there is still room for price increases, and industry leaders are expected to benefit; 2) Iron phosphate and lithium iron phosphate industry chain, as per BaiChuan information, as of October 2025, the capacity utilization rate of the above products has increased from around 50% at the beginning of the year to 82.68%/73.13%. As of November 7, 2025, industry inventories were 40,100/24,500 tons, indicating a continuous destocking trend in the industry. Due to long-term industry losses, it is expected that under high demand, the industry will seek better prices, and enterprise profits are expected to significantly improve. In addition, the increase in demand for iron phosphate may further drive demand for high-grade phosphate ore. In the context of a shortage of high-grade phosphate ore domestically, prices of high-grade phosphate ore may rise; 3) Lithium iron phosphate production capacity is expected to further increase, leading to an increase in oxalic acid demand, and oxalic acid prices are expected to rise. Continued anti-overcapacity efforts, with multiple industries continuing to self-regulate. Taking the basic chemical index as a reference, since 2022, industry profits have declined for three consecutive years, with intense competition in some chemical industries, and the industry as a whole is in a state of losses. Since the beginning of the year, many industries have actively responded to the domestic "anti-overcapacity" call, actively promoting industry self-regulation in order to reshape the balance of supply and demand for products, boost product prices, and enhance industry profitability. 1) Silicone industry: According to BaiChuan information, it is estimated that there will be no new production capacity in the industry from 2025 to 2026. With steady growth in industry demand, industry profit recovery is expected; 2) Coal chemical industry: Optimistic about the orderly development of the coal chemical industry after the "anti-overcapacity" effort, and focus on industries such as coal-to-olefin and coal-to-urea. 3) Polyester filament: With high industry concentration, leading companies show strong willingness to coordinate production reduction. Combined with upstream PTA industry self-regulation for production reduction, the industry price difference is expected to continue to recover; 4) Caprolactam (CPL): According to the Plasticizers Alliance announcement, on November 5, 2025, the CPL industry held a meeting and decided to implement a 20% production cut, and raise the price of each ton of product by 100 yuan/ton. Some products are highly prosperous, and prices are expected to continue to rise. In terms of industry prosperity, the agricultural chemicals, refrigerants, bioenergy, tire, and chromium metal sectors are currently in an upturn in the cycle. 1) Potash fertilizer: According to Nutrien's forecast, global demand for potash fertilizers is expected to further increase to 74-77 million tons in 2026. Due to the delayed expansion of major companies in the industry, global potash fertilizer prices are expected to remain high, with further room for exploration. 2) Refrigerants: Under the strong constraints of the "Kigali Amendment", the domestic supply ceiling for third-generation refrigerants has been locked down, leading companies have continuously increasing bargaining power, and prices are expected to continue to rise. 3) Bioenergy: On November 8, the State Council Information Office released the White Paper "China's Actions on Peaking and Carbon Neutrality", mentioning increasing the replacement of traditional fuels with advanced bio-liquid fuels, sustainable aviation fuels, etc., which is expected to drive the UCO-HVO-SAF industry chain to high prosperity; 4) Tires: The all-steel tire industry has exited its bottom, with the domestic stable growth combined with overseas infrastructure background, the all-steel tire industry is expected to experience a turnaround, coupled with the anti-dumping profit elasticity for semi-steel tires in the EU, looking forward to investment opportunities in the tire sector; 5) Chromium metal: One-third of global chromium salt demand is related to cyclical industries. With a significant increase in demand due to AI + self-controllable contributions, expect the reassessment of chromium elements brought by the resonance of cyclical demand. Risks: Industry policy implementation falls short of expectations; Demand falls short of expectations, product price increases are lower than expected; Excessive construction of new production capacity surpasses expectations, leading to a longer time frame than expected for restructuring product patterns; Global trade frictions exceed expectations.