SinolinkPerformance differentiation in the background of high oil prices in the chemical industry Focus on the direction of price cycles and new materials.

Sinolink released a research report stating that the overall performance of the chemical industry is beginning to recover, with increased industry attention amid dramatic fluctuations in oil prices, but performance differentiation within specific sub-sectors. From a fundamental perspective, on one hand, the current industry expansion cycle is coming to an end and many sub-industries are still at a relatively low point in the cycle in terms of profitability. After the bottoming out of the cycle, a recovery is expected. On the other hand, some sub-sectors that were temporarily damaged due to the sharp rise in oil prices are starting to reflect their value in terms of cost-effectiveness after adjustments, hence the continued positive outlook for investments in the large chemical industry sector. In terms of the cyclical orientation, it is recommended to focus on sub-sectors where demand is supported and positive changes are seen on the supply side, sub-sectors that were temporarily damaged due to the rise in oil prices and are expected to recover in the future, as well as leading companies with significant competitive advantages. In terms of industrial trends, it is recommended to continue monitoring the opportunities in materials brought about by the acceleration of AI applications. Sinolink's main views are as follows: Performance differentiation in the backdrop of high oil prices, focusing on cyclical price increases and investments in new materials directions. The bottoming out of the cycle has come to an end, and the performance of the chemical sector is starting to recover. After experiencing rapid growth driven by the upward cycle during 2021, many chemical companies have started large-scale expansion, leading to oversupply in some sub-sectors and resulting in a decline in profitability. After continued cyclical downturn from 2022-2025, signs of performance recovery began to appear in the chemical sector in 2026. In 2025, the overall revenue of the chemical industry reached 6.4 trillion yuan, a year-on-year decrease of 4%; net profit attributable to shareholders was 169 billion yuan, a year-on-year decrease of 2%. In the first quarter of 2026, the overall performance of the chemical industry improved significantly, with total revenue of 1.6 trillion yuan, a year-on-year increase of 2.7% and a quarter-on-quarter increase of 1.2%; net profit attributable to shareholders was 786 billion yuan, a year-on-year increase of 48% and a quarter-on-quarter increase of 307%. In terms of individual sub-sectors, industries that performed well in terms of revenue and profits in 2025 include fluorine chemistry, potash fertilizers, and fiberglass, while industries under pressure include soda ash, other fibers, and petroleum processing. In the first quarter of 2026, industries with high growth in performance include potash fertilizers and textile chemicals, while industries under pressure include synthetic leather, other fibers, and inorganic salts. Industries with significant improvement in profitability in 2025 include fluorine chemistry, potash fertilizers, and pesticides, while industries with significant decline include soda ash, tires, and other rubber products. In the first quarter of 2026, industries with significant improvement in profitability include fluorine chemistry, potash fertilizers, and polyester, while industries with significant decline include synthetic leather, carbon black, and other rubber products. The outlook for various sub-sectors of the chemical sector since 2025 has shown clear differentiation in business activity, with tire and soda ash sectors under pressure. The tire sector is a typical representative of China's outbound industry, mainly affected by upward pressure on core raw material rubber prices and overseas tariff risks; the main challenge facing the soda ash industry is still oversupply, with new capacity coming online in 2025, increase in downstream glass cold repair production lines, exacerbating supply-demand contradictions and leading to weak market prices. Industries that have continued to perform well include fluorine chemistry and potash fertilizers, with a tightening of the refrigerant production quota system, market supply exhibiting significant rigidity, and companies generally adopting a price support strategy; potash fertilizers have benefited from the drive for spring plowing and the expected price increase due to global supply tightening. In terms of stock price and performance of enterprises, the performance of individual stocks in the agrochemical sector has been relatively good, and with the rise in chemical prices amid the geopolitical conflict and surging oil prices, attention to the coal chemical sector and the direction of price increases has increased. In addition, the momentum in the technology direction remains strong, and as AI applications continue to be implemented, the materials sector is also experiencing thematic gains. The performance of leading companies shows differentiation as they transition with the industry cycle, with leaders demonstrating resilience in performance due to cost advantages and well-rounded strategies. Due to the impact of fluctuating product prices and weak demand, Wanhua and Huaru saw a slight decline in performance in 2025, with net profits decreasing by 4% and 15% year-on-year, respectively. In the first quarter, performance significantly improved with the rebounding of main product prices. The net profits increased by 21% and 58% year-on-year respectively. The leading agrochemical company, Yangnong, experienced relatively small fluctuation in performance. Although the tire industry saw a decline in sentiment under the multiple negative influences of rising raw material prices, intensified competition, and risks of overseas tariffs, the leading company Sailun Group demonstrated strong performance resilience, with net profits decreasing by 13% in 2025 and increasing by 2% in the first quarter of 2026. Risk warnings include a decline in domestic and foreign demand, drastic fluctuations in oil prices, changes in trade policies affecting industrial layouts, and price declines in products.