Western: The chemical industry's valuation and profit double bottom has now appeared, with high-performance new materials becoming the core of growth.

Western released a research report stating that the chemical industry is currently at a double bottom in terms of valuation and profits, with a net profit of 116 billion yuan for the base chemical sector in Q1-3 25, a year-on-year increase of +7.45%, with differentiated performance in sub-sectors; multiple sub-industries are facing the risk of overcapacity, and attention should be paid to the promotion of anti-overcapacity policies. With the contraction of resource supply and steadily rising demand, the prosperity cycle is expected to continue to rise. In addition, under the drive of AI and semiconductor demand, high-performance new materials have become the core of growth. The main points of view of Western are as follows: Valuation and profitability have bottomed out, and policy-driven anti-overcapacity policies are expected to bring a turning point to the chemical industry. 1) As of November 20, the chemical industry has increased by 37%, leading the way in terms of gains in sub-industries mainly related to technology themes. The chemical industry is currently at a double bottom in terms of valuation and profitability, with a net profit of 116 billion yuan for the base chemical sector in Q1-3 25, a year-on-year increase of +7.45%, with differentiated performance in sub-sectors. 2) On the demand side: the Fed's resumption of interest rate cuts, global political stability, demand is expected to improve; domestic exports and the automotive sector support demand, while demand in the real estate and textile industries continues to decline. 3) On the cost side: oil prices and coal prices are expected to be under pressure, weak support for chemical product costs. 4) On the supply side: the total amount of ongoing projects in the base chemical sector in 25 H1 was down 12.4% year-on-year. There is overcapacity in multiple sub-industries of the chemical industry, and attention should be paid to the promotion of anti-overcapacity policies. With resource supply shrinking and demand steadily rising, the prosperity cycle is expected to continue to rise. 1) Potassium fertilizer: It is expected that the price of potassium fertilizer will rise in 26, and the industry's supply and demand will remain relatively tight from 26-28. 2) Phosphorus chemicals: Phosphorus ammonium production capacity is limited, and it is estimated that the demand for monoammonium phosphate and diammonium phosphate for phosphorus ore will be 42.33/43.26/43.88 million tons from 25-27; the demand for lithium iron phosphate is higher than expected, and it is estimated that the demand for phosphorus ore will be 10.32/14.45/19.51 million tons from 25-27; the supply and demand of phosphorus ore are expected to be relatively tight. 3) Refrigerants: Supply of refrigerants is limited by quotas, with second-generation refrigerants being cut rapidly, and the concentration of quotas for third-generation refrigerants; quota management combined with demand growth has steadily increased the prosperity of refrigerants; it is difficult in the short term to replace the fourth-generation refrigerants, and the prosperity cycle of third-generation refrigerants is expected to be promising. 4) Silicone: The organic silicone industry has been in continuous losses from 23-25, and in 26, overseas production capacity reduction + domestic anti-overcapacity measures are expected to ease the supply and demand contradictions, with a potential supply gap of 260,000 tons in 27. 5) Crude oil: It is difficult for Brent oil prices to fall below $60 per barrel, and it is expected that oil prices will enter an upward cycle in 26; overseas shutdown of ethylene, propylene, and polypropylene production capacity increased by 63.5%/39%/228.5% year-on-year in 25H1, and the gross profit margin of domestic refineries increased year-on-year. 6) Chromium salt: Chromium salt exports increased by 52.5% in 25, with SOFC opening up a new demand for chromium salts; exports of other chromium oxides and hydroxides from January to September in 25 increased by 52.5% year-on-year, and the prosperity of chromium salts gradually increased along the chromium metal - chromium oxide green - sodium dichromate path. Accelerated release of AI and semiconductor demand, high-performance new materials become the core of growth 1) Electronic resins and fillers: Benefiting from AI-driven demand, demand for high-speed resin and silica spheres is rapidly increasing. 2) Semiconductor materials: Supply chain security demands are prominent, and attention should be paid to the localization process of semiconductor materials. 3) Coolants: Server power continues to rise, and immersion cooling may be an important direction in the future. Recommendations to follow Potassium fertilizer: Qingdao East Steel Tower Stock (covered), Asia-Potash International Investment, Qinghai Yanhu Industry; Phosphorus chemicals: Guizhou Chanhen Chemical Corporation, Chengdu Wintrue Holding, Hubei Xingfa Chemicals Group, Yunnan Yuntianhua, Kunming Chuan Jin Nuo Chemical, Anhui Sierte Fertilizer Industry; Refrigerants: Zhejiang Juhua, Zhejiang Sanmei Chemical Industry, Zhejiang Yonghe Refrigerant, DONGYUE GROUP; Silicone: Shandong Dongyue Silicone Material, Hubei Xingfa Chemicals Group, Hoshine Silicon Industry; Crude oil: CNOOC Limited, Zhongman Petroleum And Natural Gas Group Corp., Ltd., Geo-Jade Petroleum Corporation; Refining: Petrochina, China Petroleum & Chemical Corporation, Hengli Petrochemical, Rongsheng Petro Chemical; PTA filament: Xinfengming Group, Tongkun Group; Chromium: Hubei Zhenhua Chemical. Risk warning: Risks of policies falling short of expectations, intensified industry competition, sharp decline in overseas demand, deteriorating trade competition landscape.