China Securities Co., Ltd.: The chemical sector is gradually entering a peak season; focus on sectors and stocks showing quarter-on-quarter improvement in Q3.

China Securities Co., Ltd. published a research report stating that fluctuations in oil prices have affected the market's pace of chemical allocation. Uncertain oil prices have caused the downstream chemical sector to prefer operating with low inventories, leading to a short-term decline in price spreads. However, as oil price expectations gradually stabilize, the inventory of crude oil and downstream products is expected to drive an upward inventory cycle. From a mid-term perspective, the core logic of China's chemical industry remains the scarcity of chemical assets, which is further reinforced by disruptions in the petrochemical supply chain. China Securities Co., Ltd. presents the following main viewpoints: The chemical industry is gradually entering its peak season; focus on segments and stocks that show quarter-on-quarter improvement in Q3. After the destocking in April and May, the current downstream inventories are relatively low, and the transition from destocking to normal procurement will likely improve apparent demand, while the real demand in September and October is expected to be high. However, considering that oil prices are still at high levels with significant volatility, the willingness of the downstream to restock will not be strong. The firm maintains the view of weak restocking this autumn. In the long term, leading chemical companies have already demonstrated excellent profitability at the bottom of the cycle, possessing substantial value; however, in the short term, they still face the risk of performance decline due to high bases in Q2 and weak restocking in Q3. It is recommended to pay close attention to industries and stocks that are expected to show further upward performance in Q3, including: overseas refined oil with persistent high prosperity, fluoro-chemical refrigerants with rising quantity and price, potassium fertilizers with continuous volume expansion of new capacity, and tires with significantly declining costs. El Nio is expected to boost the prosperity of the agrochemical industry; focus on investment opportunities in the fertilizer and pesticide sectors. El Nio is rapidly strengthening, and the Indian Ocean Dipole (IOD) index has also turned positive and reached the threshold for positive phase, with seasonal resonance forming between the Pacific and Indian Ocean sea temperature anomalies. The risks of abnormal global monsoon and precipitation patterns are increasing, and global crop yields and price fluctuations may be further amplified, with the price central tendency of grains likely to rise. Elevated grain prices driven by weather disturbances are expected to enhance planting profits, agricultural input, and channel restocking enthusiasm. In terms of fertilizers, the prices of single fertilizers remain high, with the firm optimistic about phosphate fertilizer companies benefiting from high phosphate rock prices and continuously solidifying integrated advantages in the gypsum-to-acid sector. Potash companies benefit from global oligopoly pricing support and a tight supply-demand balance, while also exhibiting strong growth potential. Regarding pesticides, the industry has experienced about three years of downturn; although prices are still at historical lows, they are gradually moving towards the upside. The overseas restocking demand is gradually starting, exports of formulations, and profits of leading companies have begun to recover, and the firm is optimistic that El Nio is likely to raise the peak of this pesticide prosperity cycle. Risk Analysis (1) Oil prices may rise or fall beyond expectations; (2) Changes in industry competitive landscape; (3) Fluctuations in the macro economy and a downturn in the global economy.