China's Great Wall: Fixed asset investment in the chemical industry is gradually slowing down, and chemical product prices are expected to rise.

China Great Wall released a research report stating that, from the overall trend, since the third quarter of 2025, the cumulative rate of change in the basic chemical industry has quickly rebounded, and the chemical industry has entered a gradual recovery cycle. From the perspective of fixed asset investment, the fixed asset investment of the chemical industry has gradually slowed down, and the cumulative year-on-year data of fixed asset investment completion in various sub-industries has fallen from the high point in early 2025. In addition to the introduction of supply-side anti-inner cycling policies and the gradual implementation of consumer stimulus policies, upstream chemical prices are expected to enter a period of upward movement, and the PPI index is expected to recover. The main points of view of China Great Wall are as follows: Middle East conflicts push up oil production costs, energy security strategy upgrades, and accelerated import substitution resonate with three logics, enhancing the prosperity of the coal chemical industry. The bank believes that from the cost side, conflicts in the Middle East have pushed up the central international oil price and the production costs of oil chemical products, while under the policy of stabilizing the supply and price of coal under coal-to-chemical raw material costs, the coal-oil cost differential continues to expand, which is expected to strengthen the market competitiveness and profit elasticity of coal chemical products. From a strategic perspective, coal chemicals are one of the core pillars that ensure the security of our country's supply of chemical raw materials. Continued policy support for the clean and large-scale transformation of the industry, the long-term development certainty of the industry continues to strengthen. From the demand side, technological iteration of domestic coal chemical companies continues to drive continuous improvement in product quality. In addition, overseas chemical production capacity is growing weakly due to energy cost constraints, and the process of import substitution for coal-based ethylene glycol, high-end olefins, and other products is accelerating, opening up continued growth space for the industry. The U.S. real estate chain is expected to recover, driving up MDI prices. China's MDI exports have been steadily increasing, with the United States being the main importing country. Looking at the sales of houses in the United States, both newly built and existing house sales have rebounded from the low point in mid-2024. The bank believes that the gradual recovery of the U.S. real estate market is expected to drive demand for upstream MDI and other major raw materials. From late November to mid-December 2025, major MDI producers such as BASF, Wanhua Chemical Group, Huntsman, and Dow Chemical successively issued price adjustment notices within about three weeks, with price increases generally ranging from 200-350 USD/ton, covering major global markets. MDI production capacity is relatively concentrated, Chinese companies have a certain pricing power, and it is recommended to pay attention to Wanhua Chemical Group, which has advantages in MDI production capacity. Phosphorus chemical industry is expected to benefit from a tight supply-demand situation, maintaining high prosperity. Benefiting from enhanced environmental protection and resource constraints on the supply side, accelerating the exit of outdated production capacity, and supported by rigid agricultural demand and incremental demand from new energy and energy storage, the phosphorus chemical sector is expected to maintain high prosperity. Key products such as phosphorite, yellow phosphorus, monoammonium phosphate, and lithium iron phosphate all show a tight supply-demand situation, coupled with high prices of core raw materials such as sulfur, the industry's profitability is expected to continue to improve. As industry concentration increases and the development of anti-inner cycling accelerates, leading companies will further consolidate their advantages in resources, costs, and technology, and the sector as a whole will have strong profitability and valuation recovery potential. High-pressure solid-state lithium iron phosphate is expected to increase production in the future, driving oxalic acid demand. High-pressure solid-state lithium iron phosphate can significantly improve battery energy density, extend battery life, and optimize fast charging performance. Compared to the traditional iron phosphate method, the oxalate method only requires one sintering process, greatly improving production efficiency while having lower energy consumption and environmentally friendly advantages. The bank believes that with the gradual increase in production of high-pressure solid-state lithium iron phosphate and the accelerated industrialization process of the oxalate method, there is potential to boost demand for upstream raw material oxalic acid. China's oxalic acid production capacity is relatively concentrated, with Shandong Hualu-Hengsheng Chemical holding a major market share. The bank believes that with concentrated oxalic acid production capacity, demand growth will provide good support for oxalic acid prices. As a leading company in the industry, Shandong Hualu-Hengsheng Chemical is optimistic about the contribution of rising oxalic acid prices to the company's performance. The polyester industry supply-demand situation is expected to improve. It is expected that there will be new capacity for PX in 2026, while the expansion pace of PTA and filament capacity will slow down. The overall operating rate of the polyester industry is maintained at a relatively high level, coupled with the cancellation of Indian BIS certification and the implementation of the "anti-inner cycling" policy, the PTA industry is expected to gradually warm up. With the rise in raw material prices, textile demand may gradually recover, and the continued promotion of the anti-inner cycling policy is also expected to further optimize and adjust the supply-demand situation of filaments. Limited capacity expansion coupled with downstream demand growth, the silicone industry may gradually enter a virtuous cycle. The upstream raw material industrial silicon production is highly concentrated, and supply is unstable. With the policy to eliminate outdated production capacity based on energy consumption and the temporary suspension of production in the main producing areas, the post-holiday resumption of work and production is expected to optimize supply and demand, pushing up industrial silicon prices. Silicone, with excellent properties such as high-low temperature resistance and electrical insulation, covers downstream products such as silicone rubber and silicone oil, which are widely used in traditional and emerging fields such as construction and new energy. Currently, the silicone industry is in the final stages of domestic capacity expansion cycle and continuous contraction of overseas capacity. In addition, the demand growth from emerging fields such as photovoltaics and new energy vehicles is steadily increasing, and the supply-demand relationship is expected to gradually improve. At the same time, with the implementation of the "anti-inner cycling" production reduction and price increase policy, pushing up product prices and corporate gross margins, industry competition is expected to gradually move towards a virtuous cycle, and prosperity is expected to continue to rise. Under the expectation of "anti-inner cycling", Caprolactam profitability is expected to recover. Domestic caprolactam supply is relatively concentrated, according to Bai Chuan Ying Fu data, China's caprolactam production capacity CR8 in 2025 is 63.22%. The bank believes that the high concentration of the caprolactam industry makes it easier for major producers to reach a consensus, which helps to advance the "anti-inner cycling" process. On November 5, 2025, the caprolactam industry exchange conference was held in Jinan, where polymer factory companies unanimously agreed to implement a 20% production reduction and a price increase of 100 yuan per ton of product. The bank is optimistic about the gradual recovery of caprolactam profitability and favors leading companies such as Luxi Chemical Group. With rigid demand and limited supply growth, potash prices are expected to remain high. Since 2012, exploration investment in major potash resources countries has been continuously decreasing. In the future, the incremental capacity will be limited. Most of the additional capacity from 2024 to 2028 will come from new mines and expansion projects in Laos and Russia. Global disruptions on the supply side of potash, the reduction or shutdown of major producers affecting supply chain security, will have an impact on global potash prices. In the long run, as potash demand steadily grows and supply side increases are limited until 2028, prices are expected to remain high. The bank is optimistic about major domestic potash suppliers such as Qinghai Yanhu Industry, Asia-Potash International Investment, Qingdao East Steel Tower Stock, and Zangge Mining, as high potash prices are beneficial for company performance. The refrigerant supply-demand situation continues to improve, and product prices are expected to rise more easily than fall. Compared to the previous year, there is not much overall change in the allocation of production quotas for third-generation refrigerants in 2026, and the market is expected to continue to maintain a tight balance. In addition, as the proportion of the turnover between different varieties with the same carbon dioxide total volume remains unchanged, it will be increased from 10% in 2025 to 30%, allowing producers to adjust more flexibly between different varieties, which helps to maintain the stability of refrigerant prices. Overall, the bank believes that prices of third-generation refrigerants are more likely to rise than fall, and it favors leading companies such as Zhejiang Juhua, Zhejiang Sanmei Chemical Industry, and Zhejiang Yonghe Refrigerant with quota advantages. The upward trend of third-generation refrigerant prices is expected to drive steady growth in company performance.