CICC Oil and Gas Chemical Industry 2026 Outlook: Dawn is already here, the outlook is warming up.

CICC released a research report stating that the downturn in the petrochemical industry has been continuing for about 3 and a half years. With the continuous decline in industry capital expenditures and the accelerated exit of outdated overseas production capacity, the industry's capacity is expected to enter a period of low growth. At the same time, the industry-led anti-insulation has also accelerated the profit recovery of related products. With the continuous accumulation of favorable factors on the supply side and the rapid growth in demand in new energy and other fields, the bank expects a turning point in the chemical industry cycle. CICC's main points are as follows: The downturn in the chemical industry has been going on for 3 and a half years, with chemical price indices and profit margins at low levels. Due to the pressure from the industry's supply and demand structure and the decline in prices of upstream bulk raw materials, chemical product price indices in China have fallen by 10.3% since the beginning of 2025, currently at a level of 10.4% since 2012. Since 2H22, the downturn in the midstream chemical industry has been continuing for 3 and a half years, with the profit-to-sales ratio of chemical raw materials and products from 2025 January to October at 4.14%, at a low level since 2017. In 3Q25, the gross profit margin/net profit margin of listed companies in the petrochemical industry was 15.9%/4.6%, which is also at relatively low levels in recent years. The industry's capacity will enter a period of low growth, with accelerated profit recovery due to anti-insulation. Capital expenditures continue to decline + accelerated exit of outdated overseas production capacity, the industry's capacity is expected to enter a period of low growth. From 2024/1 to 3Q25, capital expenditures of listed companies in the petrochemical industry have decreased by 18.3%/10.1%, with on-going projects in 3Q25 decreasing by 13.2% year-on-year. The fixed assets + on-going projects of listed companies in the petrochemical industry increased by 6.8% year-on-year in 3Q25, the lowest growth rate since 1Q18. Since 2023, outdated production capacity in Europe, Japan, and other overseas markets has been accelerated, helping to alleviate the global supply-demand imbalance of related products. On the anti-insulation side, the bank expects the policy side to focus on controlling the pace of new capacity additions and upgrading outdated capacity; at the same time, the profits of most sub-industries have been under pressure for a long time, leading production companies to have increasing demands for profits, gradually spreading the phenomenon of anti-insulation through industry self-discipline and production reduction. The demand growth of bulk chemical products has resilience, and overseas markets are focusing on the progress of the recovery of the US real estate market. According to CICC Real Estate and Spatial Services, the total housing transaction volume in a neutral scenario in 2026 is expected to continue to narrow down, and the bank believes that real estate will still have a weakening impact on the growth of related chemical product demand. At the same time, CICC's macroeconomic team predicts that China's demand-side policies will be moderately enhanced by 2026 to achieve an economic growth of around 5%, and the bank expects that the domestic demand growth for chemical products will still have support. It is worth paying attention to the early cycle varieties in the chemical fiber industry. From 2020 to 2024, apparent consumption of products such as polyester filament, spandex, and nylon filament has maintained rapid growth, and the bank expects chemical fibers to continue to be one of the varieties with faster demand growth among bulk chemical products in 2026. On the overseas front, traditional industries such as manufacturing and real estate in the US have been under pressure since 2025, with the US manufacturing PMI staying below 50 since March 2025, and the capacity utilization rate of goods in the 27 EU countries at historical lows, overseas markets should focus on the recovery of the US real estate market affecting the demand for chemical products. As of December 11, the P/B ratio of the basic chemical industry (CITIC) is 2.43x, at the 46th percentile since 2012; the P/B ratio of the CSI sub-chemical industry is 2.31x, at the 43rd percentile since 2012. With the continuous accumulation of favorable factors on the supply side of midstream chemicals and the rapid growth in demand for materials in the new energy field, the bank believes that the industry's capacity cycle turning point is expected to come, which will drive improvements in the industry's supply and demand structure. The bank remains optimistic about: 1) chemical industry leading companies with low valuations and significant profit growth potential in 2026; 2) the chemical fiber industry chain expected to turn around in 2026, such as PTA/polyester filament, spandex, MDI, TDI, silicones, caprolactam, PET bottle flakes, acetic acid, among others, with less new capacity and continued discipline in the refrigerant sector; 3) the continuous rapid growth in demand for lithium battery materials is expected to drive the profit recovery of related materials in the upstream; 4) emerging industries such as AI and Siasun Robot & Automation related new materials. Risks Lower-than-expected demand, significant fluctuations in prices of bulk energy sources such as oil and coal, and lower-than-expected applications in emerging industries.