The high boom of China’s chemical industry is expected to continue in the second half of the year. In 2022, under the conflict between Russia and Ukraine and the repeated epidemic in China, the Chinese demand and export demand of chemical products have been adversely affected. However, supported by high cost and rigid supply, the price index of Chinese chemical products is still at a high level. Based on the discussion of price, demand, supply and inventory factors, we believe that with the effective control of the adverse impact of the epidemic outside China, the short-term pressure on industry demand and inventory is expected to be alleviated, superimposed with the continuous rigidity of industry supply, I think the current prosperity of China’s chemical industry is expected to continue in the second half of the year.
Looking forward to the second half of 2022, we believe that the prosperity of China’s chemical industry is expected to continue. However, in the short term, under the current high price of chemical products and the overall recovery of terminal demand, but it is weak in the short term, the upstream resource products and agrochemical products benefit from the high inflation price, but the price transmission of chemicals in the middle reaches to the downstream is facing challenges. For chemicals in the middle reaches, it is more difficult to make periodic investment. We think its industry competition pattern is more worthy of attention, and the industry competition pattern of some products will enter a new stage.
Therefore, we suggest to focus on the following three investment directions:
(1) upstream resource products and agrochemical products benefiting from inflation. Since the beginning of this year, affected by the epidemic and inflation, the prices of upstream resource products and grain have risen globally, driving the prices of agricultural and chemical products to rise sharply. We believe that the prices of upstream resource products and agrochemical products are expected to remain at the current high range in the second half of the year. Therefore, we suggest paying attention to the above investment opportunities of upstream resource products and agrochemical products such as oil, gas and coal benefiting from inflation, including companies with oil and gas resources, chemical fertilizer companies (nitrogen, phosphorus and potassium simple fertilizer and compound fertilizer) and pesticide companies.
(2) focus on leading enterprises with capital expenditure expansion and R & D driven growth. After the supply side reform, the concentration of China’s chemical industry has been greatly improved. In the future, due to the restrictions of environmental protection, safety, energy consumption and other policies, the capital expenditure of the chemical industry will gather to the leader. The investment direction is mainly to focus on the expansion of the original product capacity, extend to the downstream high value-added products around the industrial chain, or expand to more high barrier fine chemicals and new materials through R & D drive. The market share of a number of high-quality Chinese leading companies is expected to continue to increase.
(3) high end applications activate the market, and the domestic substitution of high-end materials continues to advance. 5g, new display, biomedicine, automatic control and other terminal applications have gradually entered large-scale development, giving birth to the development opportunities of various supporting materials. In the continuous development and catch-up of local enterprises, China will continue to promote the domestic substitution of high-end materials.
Investment strategy: we believe that the prosperity of China’s chemical industry is expected to continue, but in the short term, the upstream resource products and agrochemical products will benefit from the high inflation price, but the price transmission of chemicals in the middle reaches to the downstream is facing challenges. For chemicals in the middle reaches, it is more difficult to make periodic investment. We think its industry competition pattern is more worthy of attention, and the industry competition pattern of some products will enter a new stage. We suggest to focus on: ① upstream resource products and agrochemical products benefiting from inflation, and recommend Xinyangfeng Agricultural Technology Co.Ltd(000902) (phosphate fertilizer) and Jiangsu Yangnong Chemical Co.Ltd(600486) (pesticide); ② For leading enterprises with capital expenditure expansion and R & D driven growth, recommend Shandong Hualu-Hengsheng Chemical Co.Ltd(600426) (capital expenditure driven) and Zhejiang Nhu Company Ltd(002001) (capital expenditure + R & D driven); ③ Benefiting from the continuous promotion of domestic substitution for some high-end new chemical materials, Valiant Co.Ltd(002643) (display materials) and Shandong Sinocera Functional Material Co.Ltd(300285) (ceramic materials) are recommended.
Risk tip: the demand for chemicals has fallen sharply; The price of raw materials on the cost side has risen sharply; The new production capacity of the industry exceeded expectations.
