Western: The prosperity of the long silk chain is on the rise, the supply and demand pattern will improve in 2026, and profitability is expected to increase.

Western released a research report, stating that the prosperity of the long filament chain is expected to improve by 2025. According to Bai Chuan Yingfu, the operating rates of PX/PTA/long filament in 2025 are projected to be 84%/76%/89%, with a year-on-year change of +1.4/-3.1/2.7 percentage points. The concentration of PTA and long filament industries is relatively high, with CR8 concentration rates of 62.43%/68.58% for PTA/long filament. The new capacity for PX/PTA/long filament is slowing down, with an estimated production of 500/0/315 million tons in 2026. In October 2025, the Industrial Information Department held a seminar on anti-dumping in the PTA industry, anticipating that with improvements in the industry's supply-demand structure in 2026, the anti-dumping measures are expected to drive profits growth for PTA and long filament. Key points from Western are as follows: -Global petrochemical macro conditions are gradually improving, indicating a potential turning point in the chemical industry. -Foreign outdated refining capacity continues to exit, with significant profit recovery in overseas refining in 2025. The cracking price differentials in the United States and Singapore reached 18.72/13.17 USD/bbl, a 24% year-on-year increase. In terms of policy, domestic anti-dumping and post-consumption tax shifting policies are advancing, accelerating the elimination of outdated capacity and boosting industry operating rates through both domestic and foreign refinery exits. -Expectations of RMB appreciation due to Fed interest rate cuts will lower refinery crude procurement costs. Based on Western's calculations, with an exchange rate of 6.8, profits for Jiangsu Eastern Shenghong/Rongsheng Petro Chemical/China Petroleum & Chemical Corporation could increase by 15/19/198 billion RMB in 2026, with profit elasticity of 732%/115%/50%. The petrochemical processing profits in 2025 bottomed out and rebounded. The average gross profit margin for Rongsheng Petro Chemical/Hengli Petrochemical/Hengyi Petrochemical/Jiangsu Eastern Shenghong/China Petroleum & Chemical Corporation/North Huajin Chemical Industries/Sinopec Shanghai Petrochemical in 25Q3 was 11.5%, up 0.6% year-on-year and 0.9% quarter-on-quarter. -The prosperity of the long filament chain is expected to improve in 2025, with further improvements in the supply-demand structure in 2026. -The operating rates for PX/PTA/long filament in 2025 are projected to be 84%/76%/89%, with a year-on-year change of +1.4/-3.1/2.7 percentage points. The prosperity of PX is improving, while PTA and long filament profitability rebound. The PX-N spread increased from 203 USD/ton in 25Q1 to 267 USD/ton in 25Q4, PTA processing fees rose from the lowest 73 RMB/ton in October 2025 to 362 RMB/ton by December 31, and long filament gross profits increased from -175 RMB/ton in 25Q3 to -83 RMB/ton in 25Q4. -The new capacity for PX/PTA/long filament is slowing down, with an estimated production of 500/0/315 million tons in 2026, corresponding to growth rates of approximately 11%/0%/7%. The CAGR of apparent consumption from 2020 to 2025 was 4.6%/6%/5.3%. Due to the distribution of new capacity investments throughout the year and the ramp-up period required, actual supply is expected to be lower than demand growth, leading to further improvements in the supply-demand balance for the long filament chain in 2026. -Anti-dumping measures are expected to drive industry profit growth, with significant profit elasticity for companies. Upstream PX and downstream long filament have favorable supply-demand structures, while midstream PTA has some excess capacity, resulting in a "high-profit margins at both ends, low in the middle" phenomenon in the long filament industry chain. According to Bai Chuan Yingfu, the concentration of PTA and long filament industries is relatively high, with CR8 concentration rates of 62.43%/68.58%. In October 2025, the Industrial Information Department held a seminar on anti-dumping in the PTA industry, expecting that with improvements in the industry's supply-demand structure in 2026, the anti-dumping measures are expected to drive profits growth for PTA and long filament. -In 2025, the gross profits for PTA/long filament were -29 and -112 RMB/ton. Assuming a 100/200 RMB/ton increase in gross profits for PTA/long filament in 2026, with a 25% tax rate, the profits growth for Hengli Petrochemical/Rongsheng Petro Chemical/Jiangsu Eastern Shenghong/Hengyi Petrochemical/Xinfengming Group/Tongkun Group would be 17.1/10.6/11.2/18.2/22.1/29.7 billion RMB, corresponding to profit elasticity of 6%/15%/301%/224%/123%/107%. -Recommended targets for attention: Large petrochemical companies such as Hengli Petrochemical (600346.SH), Rongsheng Petro Chemical (002493.SZ), Jiangsu Eastern Shenghong (000301.SZ), China Petroleum & Chemical Corporation (600028.SH), North Huajin Chemical Industries (000059.SZ), Sinopec Shanghai Petrochemical (600688.SH). Overseas refineries: Hengyi Petrochemical (000703.SZ). Long filament companies: Xinfengming Group (603225.SH), Tongkun Group (601233.SH). -Risk warning: lower-than-expected demand growth, significant fluctuations in oil prices, and unexpected increases in new capacity.