Shenwan Hongyuan Group: there are expected improvements in costs and supply-demand dynamics, and the petrochemical industry is poised for growth.

Shenwan Hongyuan Group released a research report stating that the capital expenditure growth rate in the petrochemical industry is gradually slowing down, with some companies' capital expenditure reaching its end. Dividends are expected to remain at a high level, with potential for increase in dividend yield as performance improves. The center of oil prices has fallen slightly, improving cost expectations for petrochemical companies. Additionally, with the gradual withdrawal from overseas refining, stricter domestic consumption tax collection, and lower operating rates of domestic refineries, there is positive space for competition among top companies in the industry, with expectations for a recovery in the petrochemical industry in the future. Key points from Shenwan Hongyuan Group: Petrochemical situation: Costs have returned to a comfortable level Reviewing the historical trends of the petrochemical industry, the report believes that oil prices, product prosperity, growth potential, and dividends are the main factors influencing stock prices. Currently, in the context of increased production by the OPEC alliance and continuous increase in non-OPEC output, oil prices have returned to a neutral range, alleviating pressure on petrochemical costs and entering a comfortable zone, with expected improvement in future performance. In terms of product prosperity, current petrochemical product prosperity is at a historically low level, providing a high safety margin. The capital expenditure growth rate in the petrochemical industry is gradually slowing down, with some companies' capital expenditure reaching its end. Dividends are expected to remain at a high level, and with improved performance in the future, there is significant room for an increase in dividend yield. Global refining "rising in the east and falling in the west", with higher demands for ESG Eastern countries mainly focus on building integrated super refineries to meet local energy security goals and increasing local demand, while Western countries' refining capacity has significantly decreased due to aging facilities leading to reduced efficiency and increased maintenance costs. Combined with energy costs and carbon emissions, more refineries are expected to withdraw. Future global refining growth is expected to gradually slow down, mainly due to expectations of slowing demand growth, policy promoting energy transition, and ESG concerns for the overall environmental impact of refineries. Refinery investment is gradually shifting from focusing on economies of scale to focusing on the low-carbon and renewable energy sectors. With expectations of peaking oil demand, referring to the development of other refineries in Asia, the trends for future domestic refineries may involve reducing oil production, developing new materials, overseas collaboration, and future domestic refinery trends. Petrochemical fundamentals: Opportunities and challenges coexist, with significant space for prosperity recovery Domestic petrochemical capacity is currently close to a ceiling of 1 billion tons, and in the trend of stricter taxation and narrowing price differentials for risk oil types, the domestic refining industry will face restructuring, creating a more favorable competitive landscape for top companies to develop. Looking at the fundamentals, opportunities and challenges coexist in the petrochemical industry: 1) Demand for finished oils is shrinking, accelerating the process of reducing oil production and increasing chemicals. With the increase in penetration of new energy vehicles, gasoline consumption faces certain substitutions, but the number of fuel vehicles is still increasing, maintaining peak consumption expectations; the development space for diesel is greatly affected by natural gas heavy-duty trucks, and in the context of relatively low economic growth rates, the space for diesel consumption is expected to gradually shrink; with the rising trend of travel, kerosene consumption has significantly increased. By 2025, with the decrease in the operating rate of domestic refineries, the price differential for finished oils shows some recovery, but in the medium to long term, the trend of shrinking demand for finished oils exists. 2) Slowdown in the supply of olefins, with profit recovery potential. During the "Twelfth Five-Year Plan" period, there are still a large number of olefin units being put into operation domestically, with the main supply of ethylene coming from projects to reduce oil production and increase chemicals, while propylene comes more from PDH units. Currently, with the trend of slowing down in new operations and the withdrawal of overseas units, olefin profits have shown some recovery, and tariffs may lead to slowing down in the implementation progress of domestic PDH units, accelerating the recovery of olefin profits. 3) Weakening demand for adjusting oils drives a decline in aromatics prosperity, with aromatics profits basically at the bottom. Affected by the decline in demand for finished oils, the downturn in adjusting oils has driven a decline in PX profits, with current prosperity basically at the bottom; in the short term, pure benzene's profits are expected to decline under the trends of weakening demand and increasing imports. With relatively limited overall supply of aromatics in the future, the prospects for aromatics prosperity are expected to gradually recover as demand steadily increases. Risk Warning: Risks of significant fluctuations in oil prices, uncertainty in industry supply, risks of global demand and economic downturn, etc.