EB SECURITIES released a research report stating that the government's continuous emphasis on "anti-involution" and stable growth, coupled with the imminent release of a work plan for the petrochemical industry, is expected to drive the elimination of outdated capacity and guide the sector toward healthy development. Leading companies are poised to benefit from the improving supply-demand dynamics.

The "anti-involution" policy has been issued, and cost-side constraints are expected to accelerate the consolidation of high-energy-consumption industries. Recent government statements on "anti-involution" and stable growth, along with the Ministry of Industry and Information Technology's forthcoming work plan, are set to eliminate outdated petrochemical capacity and foster healthy industry growth. On July 18, 2025, Xie Shaofeng, Chief Engineer of the Ministry of Industry and Information Technology, announced a new round of work plans for ten key industries, including steel, non-ferrous metals, petrochemicals, and building materials, aimed at structural adjustment, supply optimization, and the phase-out of obsolete capacity. On July 30, 2025, a meeting of the Political Bureau of the CPC Central Committee emphasized advancing the development of a unified national market, optimizing market competition order, regulating disorderly competition, and managing capacity in key industries. On September 25, 2025, seven departments, including the Ministry of Industry and Information Technology, issued the "Work Plan for Stable Growth in the Petrochemical Industry (2025-2026)," targeting an average annual increase of over 5% in industry value-added, stabilized economic benefits, enhanced innovation capabilities, improved refinement, digital empowerment, safety standards, and significant progress in pollution reduction and carbon efficiency.

China has implemented strict supply-side control policies for high-energy-consumption industries such as calcium carbide and caustic soda. In 2016, the State Council's "Guiding Opinions on Adjusting Structure, Promoting Transformation, and Increasing Efficiency in the Petrochemical Industry" imposed strict controls on new capacity in oversupplied sectors like urea, phosphate fertilizers, calcium carbide, caustic soda, polyvinyl chloride, soda ash, and yellow phosphorus. Relevant authorities were prohibited from approving land use, energy, environmental assessments, or new credit for non-compliant projects, with advanced technological upgrades requiring equivalent or reduced capacity replacement. The "Work Plan for Stable Growth in the Petrochemical Industry (2023)" called for increased efforts in energy conservation, pollution reduction, and carbon emission cuts in sectors including oil refining, ethylene, para-xylene, methanol, synthetic ammonia, phosphate fertilizers, calcium carbide, caustic soda, yellow phosphorus, soda ash, polyvinyl chloride, and purified terephthalic acid. Looking ahead, policies will focus on "anti-involution" and the elimination of outdated capacity. Combined with bottoming profitability in high-energy-consumption industries like calcium carbide and chlor-alkali, intensified cost competition is expected to accelerate the exit of obsolete facilities, contributing to supply contraction and higher industry concentration. This will also promote the scaling up and modernization of production facilities, enhancing the overall competitiveness of the calcium carbide and chlor-alkali sectors.

Calcium carbide: Industry concentration is expected to increase, with supply-side consolidation driving improved market conditions. On the supply side, according to BaiChuan Info, China's total calcium carbide capacity in 2025 was 41.66 million tons, down 7.1% from the 2022 peak of 44.83 million tons. The top six companies account for 9.8 million tons of capacity, with a CR6 concentration of only 23.5%, indicating a fragmented landscape. New capacity additions for 2026-2027 are projected at 520,000 tons, reflecting low growth. On the demand side, calcium carbide consumption has continued to decline due to weak downstream PVC demand, with apparent consumption in 2025 at 24.9 million tons, down 6.45% year-on-year. Profitability-wise, gross margins for calcium carbide have hovered near cost levels since 2022, with a per-ton gross profit of -226 yuan by the end of 2025, indicating losses. The introduction of "anti-involution" policies is expected to sustain supply-side reforms in the calcium carbide sector, with the elimination of outdated capacity boosting concentration and driving overall market improvement.

Liquid caustic soda: Market conditions have bottomed out, awaiting supply-side improvements. By the end of 2025, the per-ton gross profit for liquid caustic soda was 744 yuan, at a relatively low level since 2021, indicating bottomed-out industry conditions. On the supply side, China's total caustic soda capacity in 2025 was 51.66 million tons, up 2.46% year-on-year, with the top six companies accounting for 6.66 million tons and a CR6 concentration of only 12.9%, reflecting a fragmented structure. The bottoming-out of market conditions has intensified cost competition, and against the backdrop of "anti-involution," the accelerated exit of outdated capacity is expected to drive an upturn in industry conditions through supply-side improvements.

PVC: Infrastructure and real estate demand await recovery, while "anti-involution" and stricter environmental policies drive industrial transformation. In the downstream consumption structure of PVC (by volume), the building materials sector remains the primary application area, with pipes, fittings, profiles, and doors/windows accounting for 41% of 2025 consumption, indicating close ties to real estate and infrastructure. Due to weak demand in these sectors, PVC apparent consumption in 2025 was approximately 18.66 million tons, down 7.1% from 2020, indicating that downstream demand remains subdued. China's PVC capacity in 2025 was 30.38 million tons, with the top six companies accounting for 7.89 million tons and a CR6 concentration of 26%, indicating low domestic concentration. PVC is a traditionally high-pollution, high-energy-consumption industry, and under tightening environmental policies, supply-side growth is limited. New PVC capacity for 2026-2028 is projected at 2.56 million tons, representing 8.4% of 2025 total capacity. Stricter environmental policies combined with "anti-involution" measures are expected to force industrial transformation and upgrading, increase concentration, and phase out small and outdated capacity.

Investment recommendations suggest focusing on: (1) The calcium carbide-chlor-alkali-PVC industrial chain, including companies like LuHua Technology, Chlor-Alkali Chemical, Xinjiang Tianye, Junzheng Group, and Beiyuan Group; (2) The nitrogen fertilizer sector, including HuaLu HengSheng, Hubei Yihua, Luxi Chemical, and Yangmei Chemical; (3) The oil refining and chemical fiber/polyester chain, including PetroChina, Sinopec, Hengli Petrochemical, Rongsheng Petrochemical, Eastern Huajin, Hengyi Petrochemical, Tongkun Shares, Xin Feng Ming, and Huajin Chemicals; (4) The phosphate and potash fertilizer industries, including ChuanHeng Holdings, Hubei Yihua, Salt Lake Potash, Asia-Potash International, and Sinofert; (5) The pigment and dye sector, including七彩化学, Lily Group, Xinkai Technology, Zhejiang Longsheng, and RunTu Shares; (6) The organic silicon/industrial silicon industry, including Hoshine Silicon, Wynca, and Silibase Silicon; (7) The soda ash sector, including SanYou Chemical, BoYuan Chemical, and Shandong Haihua. Risks include slower-than-expected policy implementation, delays in capacity elimination, and fluctuations in industry conditions.