Orient Securities has released a research report stating that the ongoing Middle East conflict and the blockade of the Strait of Hormuz have caused disruptions in the export of crude oil and naphtha, delivering a dual blow to the global chemical industry. Furthermore, comparing China, Japan, and South Korea, there are significant differences in the supply stability of naphtha across these countries. The industrial structure of so-called chemical powerhouses, characterized by "small upstream, large downstream," is now facing severe impacts under exposed security risks, potentially even affecting long-term viability. China has already established strong competitiveness, and leading fine chemical companies poised to capture unexpected overseas demand growth are expected to benefit. The main views of Orient Securities are as follows:

A significant divergence has emerged in naphtha prices. The Middle East conflict has persisted for over two months, yet daily life in China has been largely unaffected. The market attributes this discrepancy between theoretical expectations and actual experience to the resilience of the industrial chain, which is so robust that it has led to skepticism about whether the Middle East conflict still impacts the chemical industry chain. The firm uses the naphtha situation as a starting point for analysis. Firstly, naphtha is a core raw material for chemical production. Secondly, a notable divergence has recently occurred between domestic and international naphtha prices, a rare phenomenon for such a large-scale petrochemical feedstock. The firm believes the core issue lies on the supply side.

From a supply structure perspective, examining the margin for error: In China, naphtha, as an intermediate product in refining, is typically produced and consumed internally. There are very few chemical projects that need to purchase naphtha externally. In 2025, China's apparent consumption dependence on naphtha imports was only 17%, and the firm considers this figure potentially overestimated. In contrast, Japan has relied on imports for over 60% of its naphtha consumption for many years. Compounding this issue is Japan's naphtha import source structure, which has long depended primarily on the Middle East and surrounding Asian countries. Japan's strategy of avoiding less profitable refining segments while maintaining its more profitable fine chemical industry, a prioritization of economic efficiency, has transformed into a shock that could severely damage or even destroy its chemical industry when security risks materialize.

From a product structure perspective, examining adjustment capacity: China's crude oil processing volume has maintained steady growth over many years, increasing by approximately 36% from 2016 to 2025, reaching 738 million tons. Moreover, during this continuous increase in processing volume, China has maintained balanced development across various sectors, with the proportion of new energy vehicles already reaching a relatively high level. After the outbreak of the Middle East conflict, even if refinery operating rates in China decline, reducing some gasoline and diesel production, it would not pose a threat to social stability. Simultaneously, by halting refined oil product exports and appropriately adjusting refinery product structures, naphtha supply can be well secured. Consequently, China's operating rates for ethylene and PX have only seen a slight decrease compared to pre-conflict levels in February this year. Conversely, Japan's crude oil processing volume has actually been declining in line with domestic refined product demand. After the conflict erupted, to ensure refined product supply, Japan lacked the capacity to increase naphtha production. Coupled with import disruptions, this led to significant production issues.

Investment recommendations and targets: From an investment perspective, chemical products with a relatively large overseas exposure have shown good price spread elasticity. Based on the firm's coverage, it is primarily optimistic about MDI and polyester bottle chips, with related targets including Wanhua Chemical and Wankai New Materials. Simultaneously, the firm believes the impact of this round of Middle East conflict on the chemical industries in Japan, Europe, and others may be more severe than past crises. China has already established strong competitiveness, and leading fine chemical companies poised to capture unexpected overseas demand growth are also expected to benefit. Related targets include Huangma Technology, Changqing Technology, and Lion. Risk warnings: Changes in the Middle East conflict situation; demand falling short of expectations; changes in assumptions affecting calculation results.