EB SECURITIES: "Anti-inner spiral" accelerates the clearing of supply-side, the competitiveness of petrochemical industry leaders is expected to improve.

EB SECURITIES released a research report stating that the country has continuously voiced its support for "anti-internal competition" and stable growth. The Ministry of Industry and Information Technology is set to launch a stable growth plan for the petrochemical industry, which is expected to drive the elimination of outdated production capacity and lead the industry towards healthy development. Leading companies in the industry are expected to continue benefiting from improvements in the industry's supply and demand structure. Looking ahead, policies will focus on "anti-internal competition" and the elimination of outdated production capacity. At the same time, the profitability of high-energy consuming industries such as caustic soda and chlorine alkali is expected to hit bottom, leading to an acceleration in the exit of older facilities. This will help to reduce industry supply and increase concentration, while also accelerating the modernization of facilities and improving the overall competitiveness of the caustic soda and chlorine alkali industry. EB SECURITIES' main points are as follows: 1. The release of the "anti-internal competition" policy is expected to accelerate the elimination of high-energy consuming industries on the cost side. Recently, the country has been voicing its support for "anti-internal competition" and stable growth. In addition, the Ministry of Industry and Information Technology is launching a stable growth plan for the petrochemical industry, aiming to eliminate outdated production capacity and lead the industry towards healthy development. Various meetings and policies have emphasized the need to optimize market competition, regulate enterprises' competition order, and address issues related to production capacity in key industries. The newly issued plan for the petrochemical industry aims to achieve a yearly average growth of value-added of over 5% from 2025 to 2026. The plan also focuses on enhancing the industry's eco-friendly and technologically innovative capabilities. China has implemented strict control policies on the supply side of high-energy consuming industries like caustic soda and chlorine alkali. Policies have been put in place to control excess capacity in these industries and promote energy-saving, pollution-reducing, and carbon-cutting transformations. Looking ahead, policies will focus on the elimination of outdated production capacity, coupled with the bottoming out of profitability in high-energy consuming industries like caustic soda and chlorine alkali. This is expected to accelerate the exit of older facilities and help improve the overall competitiveness of the industry. 2. Caustic Soda: Industry concentration is expected to increase, and supply-side clearances are expected to improve the industry's business environment. According to research, China's caustic soda total capacity was 41.66 million tons in 2025, a 7.1% decrease from the peak in 2022. The top six enterprises in the industry had a combined capacity of 9.8 million tons, with a CR6 concentration ratio of only 23.5%. The pace of capacity growth in caustic soda is expected to be slow from 2026 to 2027. Due to weak demand in downstream PVC sectors, the consumption of caustic soda in China has been declining. The profitability of caustic soda has been negative, with a per-ton loss of 226 yuan by the end of 2025. With the introduction of the "anti-internal competition" policy in the chemical industry, the reform of caustic soda supply is expected to continue. The elimination of outdated production capacity is likely to enhance industry concentration and boost overall business environment. 3. Caustic Soda: The industry's profitability has hit bottom, with a wait for improvements on the supply side. By the end of 2025, the per-ton profitability for caustic soda was 744 yuan, indicating a bottoming out of the industry's profitability. In terms of supply, China's total caustic soda capacity was 51.66 million tons in 2025, a 2.46% increase from the previous year. The top six enterprises in the industry had a combined capacity of 6.66 million tons, with a CR6 concentration ratio of only 12.9%. The low industry profitability has led to increased competition, prompting the elimination of outdated production capacity under the "anti-internal competition" policy. Improvements on the supply side are expected to drive business conditions upward. 4. PVC: Demand from infrastructure and real estate sectors awaits recovery, structural transformation and upgrading of the industry are driven by "anti-internal competition" and strict environmental regulations. In terms of downstream consumption, the construction industry remains a major application sector for PVC, with pipes, fittings, profiles, and windows accounting for 41% of PVC consumption in 2025. Due to the sluggishness in the infrastructure and real estate sectors, PVC's apparent consumption in 2025 was approximately 18.66 million tons, down 7.1% from 2020. China's PVC capacity in China was 30.38 million tons in 2025, with the top six enterprises having a combined capacity of 7.89 million tons and a CR6 concentration ratio of 26%. PVC is considered a traditional high-pollution, high-energy-consuming industry. Under stricter environmental policies, the increase in PVC supply has been relatively small. Environmental policies and the "anti-internal competition" policy are expected to drive structural transformation and upgrading in the industry and increase industry concentration by phasing out small and outdated production capacity. Risk Warning: Risks include slower-than-expected policy progress, slower-than-expected progress in production capacity elimination, and fluctuations in industry conditions.