China Securities Co., Ltd.: Signs of a shortage of the third-generation refrigerant supply are beginning to emerge. It is recommended to seek out core chemical assets after the impact of oil prices.

China Securities Co., Ltd. released a research report stating that the market has not yet fully priced in the upward movement of oil prices' center of gravity. It is advised that investors base their strategy on the upward movement of oil prices to prevent potential liquidity risks and first position themselves in more secure assets. Looking at the medium-term perspective, China's chemical industry's relative competitive advantage globally is strengthening, and the market's inflationary bias is favorable for profitable assets like HALO. After the oil price shock, it is recommended to look for smooth transmission of the increases in relative competitive core chemical assets. Key points from China Securities Co., Ltd.: The prospect of the UK delaying the pace of refrigerant reduction, with leading companies adjusting prices first, indicating an imminent overseas supply shortage. Recently, the UK's Environment, Food, and Rural Affairs Department announced a delay in the subsequent reduction pace stipulated by the F-Gas Regulation, indicating an emerging shortage of third-generation refrigerants supply. Additionally, the UK's largest refrigeration and air conditioning wholesaler, Beijer Ref UK, announced a 60% increase in the price of R410a refrigerant. This price increase will take effect from May 20, with a 60% increase in the price of R407c, a 35% increase in the price of R134a, and a 30% increase in the price of R32. The UK's announcement of delaying the F-Gas Regulation's reduction pace indicates that third-generation refrigerants still hold a significant share in the local market and are difficult to replace in the short term. Coupled with recent price hikes by leading companies, the overseas demand for third-generation refrigerants is expected to be strong in 2026. With limited domestic production capacity for refrigerants, the majority of supply depends on imports. The delayed reduction this time implies a prolonged high profitability duration for domestic third-generation refrigerants. Structural differentiation in April's chemical product exports: Continuous significant volume increases in petrochemicals, while product varieties affected by earlier tax policy changes have retreated as expected. 1) Petrochemicals: Olefins and downstream products maintain high growth rates. PE, PP saw year-on-year growth rates of 484.1% and 123.5%, respectively; MMA, acrylic acid, butadiene saw year-on-year growth rates of 66.1%, 126.4%, 958.2%, respectively. 2) Polyurethane: Exports saw a further increase in growth rate. MDI, TDI saw year-on-year growth rates of 43.7% and 92.0%, respectively; propylene oxide saw a year-on-year growth rate of 695.7%. 3) Coal Chemicals: most products saw an increase in volume year-on-year. Methanol, ethylene glycol saw year-on-year growth rates of 218.1% and 951.4%, respectively; acetic acid, vinyl acetate saw year-on-year growth rates of 34.2% and 763.9%, respectively. 4) Fluorine Chemicals: Fluorspar saw a year-on-year growth rate of 570.7%. 5) Silicon Chemicals: Industrial silicon saw a continuous increase in volume month-on-month, with a year-on-year growth rate of 14.7%. 6) Chlor-Alkalis: Most products saw an increase in volume month-on-month. Caustic soda, soda ash saw year-on-year growth rates of 40.1% and 58.4%, respectively. This week, China Securities Co., Ltd.'s chemical industry index was 111.11, with a month-on-month change of -2.97% and a year-on-year change of +45.00%. The industry price percentile was 39.44% over the past 10 years, with a month-on-month change of -1.86%. The industry price spread percentile was 8.23% over the past 10 years, with a month-on-month change of -2.21%. The industry inventory percentile was 83.53% over the past 5 years, with a month-on-month change of +1.45%. The industry operating rate was 67.51%, with a month-on-month change of -0.17%. Although the post-holiday price spread has slightly decreased, overseas export orders are active, and April's export data exceeded expectations overall, indicating a positive outlook for chemical exports driven by demand. A new round of chemical industry configuration opportunities is approaching. In the past, the market chose not to bet when oil prices were unclear, but now, with low-priced crude oil and downstream inventory digestion, upstream costs are pushing prices up, downstream essential purchases are supported, and strong overseas export demand combined with the basic fundamental factors are expected to drive chemical stocks forward. The market will soon break the perception that chemical prices above $80 cannot be transmitted, ultimately returning to the fundamentals of supply and demand. A new round of chemical industry configuration opportunities is approaching. The issuance of carbon neutrality assessment methods adds catalyzing energy to the chemical supply side. The "Comprehensive Evaluation and Assessment Method for Carbon Peak and Carbon Neutrality" issued by the General Office of the CPC Central Committee and the General Office of the State Council has officially been implemented. Starting from 2026, this assessment method will be used to evaluate the carbon peak and carbon neutrality of provincial party committees and governments. The assessment includes control indicators and support indicators. The assessment results will serve as an important reference for the comprehensive assessment, selection, appointment, and supervision of provincial leadership and relevant cadres. We believe that the implementation of dual carbon is a sign of cost increase for traditional high-energy-consuming industries like the chemical industry, promoting industry elimination and accelerating industrial upgrading. Identifying targets that benefit from short-term and medium-term EPS certainty. After this round of correction, the stock price and fundamentals of the chemical industry have moved in sync. Due to a large overseas supply gap and the structural problems in domestic refined oil production, chemical prices are expected to become more robust. Although there are still differing opinions on the pricing of forward oil prices, targets that benefit from the short-term and medium-term EPS certainty, such as coal chemical and gas chemical companies, are worth paying attention to. Escalation of the US-Iran conflict, reassessment of the importance of coal chemical energy security, and rising prices and arbitrage opportunities in small chemical varieties. 1) Oil-coal arbitrage: Geopolitical risks pushing oil prices higher, while the majority of coal chemical products' competitive routes use petroleum derivatives as raw materials. In the context of widening oil-coal price differentials, coal-based production chains benefit significantly. 2) Energy security position of Xinjiang's coal chemical industry: With increasing geopolitical risks, coal chemical oil and gas production based on coal resources will once again receive national strategic attention, given its economic advantages. Looking ahead, combined with the rapid development of new energy sources in Xinjiang, it is possible for Xinjiang to become China's energy base. 3) Price opportunities due to European supply chain risks: Soaring European natural gas prices are putting pressure on the costs of chemical products, with additive-based small products having better pricing foundations and low downstream cost proportions. From food additives like arginine and vitamins to plastic additives like anti-aging agents, price increases are beginning to be realized. Risk analysis: (1) Unexpected upward or downward movement in oil prices; (2) Changes in the industry's competitive landscape; (3) Macroeconomic fluctuations, global economic downturn.