Core Viewpoint - The chemical industry is experiencing a low level of prosperity, with expectations for a cyclical recovery in the future. The performance of the petrochemical and basic chemical sectors has shown significant divergence, influenced by factors such as oil price fluctuations and market demand [2][3]. Group 1: Industry Performance - In Q1 2025, the petrochemical sector achieved revenue of 1,015.1 billion yuan, a year-on-year decrease of 7.1%, while the basic chemical sector reported revenue of 607.0 billion yuan, an increase of 6.4% [1][2]. - The net profit attributable to shareholders for the petrochemical sector was 17.0 billion yuan, down 23.5% year-on-year, whereas the basic chemical sector saw a net profit of 37.1 billion yuan, up 4.7% year-on-year [1][2]. - For the full year of 2024, the petrochemical sector is projected to generate revenue of 43,056 billion yuan, a decrease of 3.2%, while the basic chemical sector is expected to reach 24,970 billion yuan, with a slight increase of 0.3% [2]. Group 2: Cost and Demand Dynamics - The average Brent crude oil price in Q2 2025 is projected to be 65.3 USD/barrel, reflecting a decline of 12.9% from Q1 2025 and 23.2% from Q2 2024 [3]. - The petrochemical and basic chemical sectors experienced year-on-year capital expenditure growth rates of -24.5% and -5.3%, respectively, indicating a slowdown in investment [3]. - Despite challenges in international trade, the resilience of China's chemical exports is anticipated, particularly with the potential release of domestic demand driven by ongoing policy support [3]. Group 3: Investment Recommendations - The current price-to-earnings (PE) ratios for the petrochemical and basic chemical sectors are 18.2x and 23.7x, respectively, indicating a premium compared to historical averages [4]. - The basic chemical sector is viewed as undervalued, presenting medium to long-term investment opportunities [4]. - Key investment themes include expanding domestic demand, fostering new production capabilities, and capitalizing on high-performing resource sectors [5].

Investment Rating - The report maintains a "Positive" outlook on the chemical industry, highlighting the recovery at the bottom of the cycle and the focus on undervalued high-growth stocks [1]. Core Insights - The macroeconomic assessment of the chemical industry indicates a stabilization in oil prices due to geopolitical factors and OPEC+ production increases, while coal prices are expected to decline in the medium to long term. Natural gas prices are fluctuating at the bottom [3][4]. - The report forecasts a gradual recovery in profitability for the chemical sector in Q1 2025, driven by terminal inventory replenishment and improved demand, despite ongoing construction projects peaking and declining [3]. - The overall revenue for the chemical sector in 2024 is projected to reach 2.0601 trillion yuan, a 3% year-on-year increase, while net profit is expected to decline by 3% to 109.8 billion yuan, aligning with market expectations [3]. Summary by Sections Industry Dynamics - Current oil prices are influenced by the easing of the Russia-Ukraine conflict and U.S. tariff policies, with Brent crude averaging $80.93 per barrel in 2024, down 2% year-on-year. NYMEX natural gas futures are expected to average $2.41 per million British thermal units, down 10% year-on-year [3][4]. - The chemical industry is experiencing a "V"-shaped recovery in market conditions, with Q1 2025 revenue reaching 496.9 billion yuan, a 6% increase year-on-year, and net profit rising by 9% year-on-year to 32.8 billion yuan [3]. Investment Analysis - The report suggests focusing on traditional cyclical stocks with strong fundamentals, such as Wanhua Chemical and Hualu Chemical, as well as growth stocks in semiconductor materials and OLED technologies [3]. - The tire industry is expected to benefit from domestic demand recovery and cost reductions, with companies like Sailun Tire and Linglong Tire highlighted for potential investment [3]. - The report emphasizes the importance of identifying undervalued stocks with growth potential in the chemical sector, particularly in segments like agricultural chemicals and specialty chemicals [3]. Price and Inventory Changes - The report notes that the chemical industry is experiencing a gradual recovery in price differentials, with PPI data showing a slow recovery from negative values towards zero [3][4]. - The report highlights the importance of monitoring inventory levels and price movements in key chemical products, as these factors will influence future profitability and investment opportunities [3][4].