Guosen: The profitability of the petrochemical industry is gradually stabilizing and recovering. I recommend investing in oil and gas, refining and petrochemicals, potash fertilizers, and phosphate chemicals.

Guosen released a research report stating that since 2025, some sub-industries in the petrochemical sector have led the way in recovery, with the industry's net profit attributable to the mother increasing by 10.56% year-on-year in the first three quarters, and industry profits gradually stabilizing and recovering. Looking forward to February 2026, some chemical products have seen overseas demand recovery, and domestic demand is also expected to further strengthen. The bank recommends focusing on investment directions in the medium to long term that improve supply and demand patterns and have scarce resources in the chemical products sector, with a special emphasis on investment directions in areas such as oil and gas, refining and petrochemicals, potash fertilizers, and phosphorus chemicals. Guosen's main points are as follows: Petrochemicals is a cyclical industry. At present, the issue of "internal competition" in the petrochemical industry is prominent, with low-quality and homogeneous disorderly competition leading to the dilemma where enterprises generally face increased production but no increase in profits. The industry-wide operating income profit margin has fallen from 8.03% in 2021 to 4.85% in 2024, and some sub-industries have led the way in recovery since 2025, with net profit attributable to the mother increasing by 10.56% year-on-year in the first three quarters, and industry profits gradually stabilizing and recovering. Supply side: The cumulative fixed asset investment in the chemical raw materials and chemical product manufacturing industry turned negative starting in June 2025, and the capital expenditure of SW basic chemical industry and several sub-industries has been negative for several quarters. The current industry expansion cycle is approaching its end; in July, the "anti-internal competition" policy was officially introduced, aiming to address the low-price disorderly competition among enterprises, promote the orderly exit of backward production capacity, and sub-industries such as pesticides, petrochemicals, organic silicon, and PTA polyester have responded to the introduction of "anti-internal competition" or are in the process of formulating industry guidance documents. The bank believes that there will be more stringent approval of new production capacity for chemical products in the future, and backward production capacity (such as small scale, high energy consumption, and high pollution) will be accelerated to clear out, thereby effectively alleviating the oversupply problem in the petrochemical industry. Demand side: In terms of traditional demand, with global central banks entering an interest rate cut cycle and suspending balance sheet reduction, under the stimulus of monetary and fiscal policies, the bank is optimistic that traditional demand in the petrochemical industry will achieve a moderate recovery. In terms of emerging demand, from new energy to AI, key chemical materials have always been an important driver supporting the industry's technological upgrade. Clearing of overseas chemical production capacity: Affected by factors such as high energy costs and aging facilities, the European chemical industry has seen a wave of plant closures since 2025. Currently, China's chemical product sales account for over 40% of the global market, the domestic petrochemical industry chain is complete, and many chemical products are highly competitive globally. Against the backdrop of accelerating overseas production capacity clearance and expected demand recovery, the bank believes that Chinese chemical companies' market share worldwide will continue to increase, and excess capacity will be absorbed at a faster pace. Macro and chemical product prices: In January 2026, China's composite PMI output index was 49.8%, down by 0.9 percentage points from the previous month, indicating a slight slowdown in the overall production and operation activities of Chinese enterprises compared to the previous month; among them, the manufacturing purchasing managers' index (PMI) was 49.3%, down by 0.8 percentage points from the previous month, reflecting a slight decline in the manufacturing industry's business climate. On January 30, 2026, the China Chemical Product Price Index (CCPI) was reported at 4120 points, down by 4.83% from the end of last year, with a slight increase in ex-factory prices of major chemical products. Crude oil prices, with increased geopolitical risks in January, international oil prices fluctuated upwards: With Russia-Ukraine tensions entering a new phase, escalating situations in Venezuela, and Iran, the increase in geopolitical risks, coupled with compensatory production cuts by OPEC+ member countries, severe weather affecting US oil production, and the International Monetary Fund raising its global economic growth forecast for this year, along with various factors, led to a rise in international oil prices in January. As of January 30, the settlement prices for WTI and Brent crude oil futures were $65.21 and $70.69 per barrel, respectively, representing an increase of 13.57% and 16.17% from the end of last year.