Bank of China International: The peak of supply-side production expansion has passed the “backlash” to help the chemical industry recover

The Zhitong Finance App learned that Bank of China International released a research report saying that the chemical industry is currently at the bottom of the cycle. “anti-internal circulation” is expected to accelerate the optimization of the industry's competitive landscape and drive upward prosperity, and leading companies are expected to achieve both profit and valuation increases. Focus on sub-industries such as polyester filament, agrochemicals, fluorine chemicals, and silicone, which have taken the lead in implementing self-regulatory production cuts. There is an upper limit on production capacity. The refining and chemical industry, which is currently at the bottom of the cycle, is expected to benefit from the clearance of backward production capacity and a rapid recovery in prosperity.

Bank of China International's main views are as follows:

Chemical prices are at historically low levels, and profitability has periodically bottomed out

As of October 2025, PPI in the chemical industry showed negative year-on-year growth for 37 consecutive months. Of the 119 chemical varieties tracked by the bank, the proportion of varieties with a price fraction of 10% or less was 26.89%, and the proportion of varieties with a price fraction of 30% or less was 60.50%. Varieties with a price fraction above 50% account for 23.53%. The scale of business in the chemical industry has expanded and revenue has increased, but profitability is clearly under pressure. From 2022 to 2024, the basic chemical industry's net profit to mother declined for three consecutive years, and has gradually stabilized since 2025.

On the supply side, the growth rate of projects under construction turned negative year on year, and production expansion is nearing its end

In June 2025, the total fixed asset investment in the chemical raw materials and chemical products manufacturing industry turned negative year-on-year for the first time in the past 5 years. By the end of the third quarter of 2025, the fixed assets of listed companies in the basic chemical industry were 1462,858 billion yuan, up 15.56% year on year, up 12.04% from the end of 2024. However, construction projects have reached an inflection point. In Q1 of 2025, the year-on-year growth rate of projects under construction turned negative for the first time in nearly four years. As of 2025Q3, projects under construction fell further to 358.415 billion yuan, a year-on-year decrease of 15.11%, and a decrease of 10.18% from the end of 2024. Judging from inventory data, the chemical industry is still in the inventory cycle.

As of September 2025, stocks of finished products in the chemical raw materials and chemical products manufacturing industry, rubber and plastic products industry may still be increasing

On the demand side, stimulus policies boosted domestic demand, and chemical exports continued to grow. The downstream chemicals cover various industries such as real estate, automobiles, home appliances, textiles and clothing, agriculture, forestry, animal husbandry and fishing. Demand for real estate will be under pressure in 2025, and demand for automobiles, chemical fibers, etc. will continue to improve. With the implementation of policies to expand domestic demand during the “15th Five-Year Plan” period and the rapid development of downstream industries such as new energy, AI applications, and humanoid robots, China's demand for chemicals is expected to grow well. On the other hand, the chemical industry's export resilience is prominent. As of September 2025, the chemical raw materials and chemical products manufacturing industry's export volume index was 122.40. Since 2000, the share of overseas revenue of listed companies has gradually increased. In 2024, the basic chemical industry and the petroleum and petrochemical industry accounted for 23.23% and 17.09% respectively, up 5.52 pct and 1.85 pct respectively from 2014. China's chemical exports have shown diversified characteristics, and their ability to withstand risks has improved. In the future, with the release of demand in the global chemical market, there is plenty of room for Chinese chemical products to be exported.

Adjusting the global industrial landscape and improving the competitiveness of domestic chemical companies

According to statistics from the European Chemical Industry Committee, in 2023, China's chemical sales volume was 22381 billion euros, accounting for 43.1% of the world, ranking first in sales and share. Compared with 2013, China's chemical sales increased by 111.55% in 2023, and the market share increased by 9.04pct. According to WTO statistics, China's total chemical exports in 2024 were US$254.960 billion, accounting for 8.88% of the world, ranking second only to the United States. In recent years, overseas chemical production capacity has been withdrawn one after another due to factors such as high costs and old installations, and the competitiveness of Chinese chemical companies has continued to improve.

The “15th Five-Year Plan” proposal proposes to promote the upgrading of key industries and “consolidate and enhance the position and competitiveness of mining, chemical and other industries in the global industrial division of labor.”

The global competitiveness of China's chemical industry is expected to consolidate and improve in the future. Industry self-discipline, production reduction+policy coordination, chemical “anti-internal scrutiny” continues to deepen. Since 2024, sub-industries such as polyester filaments, pesticides, polyester bottles, industrial silicon, PTA, and caprolactam have successively promoted product price and profit restoration through industry association initiatives and joint production cuts by leading companies. At the same time, according to the requirements of the “2024-2025 Energy Saving and Carbon Reduction Action Plan”, the “Refining Industry Unit Product Energy Consumption Limits”, the “Notice on Carrying Out a Survey and Assessment of Old Installations in the Petrochemical Industry”, and the “Work Plan for Steady Growth in the Petrochemical Industry (2025-2026)”, the petrochemical industry is expected to achieve product structure adjustment, eliminate backward production capacity, and optimize supply by raising industry energy consumption standards, limiting new production capacity, and upgrading old installations. The bank believes that the chemical industry's “anti-internal circulation” has been upgraded from a single “joint self-regulatory production reduction” to “industry self-regulatory production reduction+policy coordination”, which is expected to boost the industry's transformation from large-scale expansion to high-quality growth and accelerate the arrival of an inflection point in the cycle.

The main risks faced by ratings

“Anti-domestic” actions fell short of expectations; global economic growth slowed; steady domestic growth policies weakened, etc.