China Galaxy Securities released a research report stating that on the cost side, the Brent crude oil price is expected to remain in a wide range at a mid-to-high level in the short term. On the supply side, on one hand, the pace of capital expenditure in China's chemical industry has become more cautious in recent years, and in-construction and existing capacity will be gradually absorbed; on the other hand, domestic supply-side self-discipline constraints have strengthened, and overseas backward capacity is accelerating its exit, so the supply side is expected to contract. On the demand side, the transition between old and new growth drivers in China continues to advance, and overseas orders are gradually flowing back to China, so demand growth for chemical products is expected. The bank believes that supply-side contraction and demand-side momentum are expected to help the chemical industry's prosperity rise, and suggests paying attention to related cyclical elasticity investment opportunities. The main views of China Galaxy Securities are as follows: In the first three quarters of 2026, the performance of subsectors in the chemical industry improved year on year. In the first three quarters of 2026, the petrochemical and basic chemical sectors achieved operating revenue of 3,080.3 billion yuan and 2,385.9 billion yuan, respectively, changing by 3.9% and 18.6% year on year; they achieved net profit attributable to parent companies of 81.8 billion yuan and 164.9 billion yuan, respectively, changing by 123.5% and 40.3% year on year. The profitability of the petrochemical sector increased significantly year on year, partly due to the low base in the same period last year, and partly due to the sharp rise in international crude oil prices amid intensified geopolitical conflicts, which drove up prices and profits across the entire chain. In the first three quarters of 2026, the average prices of Brent and WTI crude oil were 88.9 USD/barrel and 83.4 USD/barrel, respectively, increasing by 27.1% and 25.1% year on year. The year-on-year improvement in performance and recovery in profitability of the basic chemical sector may be related to improved supply-demand conditions in some subsectors, combined with cost-side increases driving the gradual repair of chemical product prices and price spreads. In 26Q3, the performance of the basic chemical sector declined quarter on quarter. In 26Q3, the petrochemical and basic chemical sectors achieved operating revenue of 1,070.6 billion yuan and 812.6 billion yuan, respectively, changing by 7.7% and 16.9% year on year, and by 3.1% and -3.8% quarter on quarter; they achieved net profit attributable to parent companies of 26.2 billion yuan and 44.4 billion yuan, respectively, increasing by 149.46% and 10.9% year on year, and changing by 2.8% and -35.3% quarter on quarter; their gross profit margins were 15.4% and 17.4%, respectively, changing by 0.8 and -0.2 percentage points year on year, and declining by 1.8 and 3.2 percentage points quarter on quarter. From May to June, geopolitical conflicts temporarily eased, and international crude oil prices fell significantly from their intra-year highs. Since July, geopolitical conflict disturbances escalated again and repeatedly, and the center of international crude oil prices fluctuated upward. In 26Q3, the average prices of Brent and WTI crude oil were 91.3 USD/barrel and 85.4 USD/barrel, respectively, increasing by 33.9% and 31.5% year on year, and declining by 5.6% and 7.4% quarter on quarter. Thanks to the high-level center of crude oil and related product prices in the industrial chain, the petrochemical sector maintained positive performance growth in 26Q3, while the sector's gross profit margin declined quarter on quarter, mainly due to significantly higher raw material costs during the period and narrowing refining-chemical price spreads. The quarter-on-quarter decline in the performance of the basic chemical sector in 26Q3 was mainly due to continued cost-side pressure, gradually weakening downstream demand, and the gradual weakening of inventory dividends. In 26Q3, the proportion of holdings in the basic chemical sector declined quarter on quarter, while the proportion of holdings in the petroleum and petrochemical sector increased quarter on quarter. From the perspective of heavily held stock market value, in 26Q3, funds mostly flowed out of growth sectors such as technology and partly shifted to defensive sectors. The incremental market value of heavily held stocks in the pharmaceuticals, banking, coal, petroleum and petrochemical, and real estate sectors ranked in the top five, with their proportions of heavily held stock market value in the total market value of heavily held stocks of sample funds at 11.23%, 2.39%, 0.93%, 1.37%, and 1.12%, respectively, increasing by 4.81, 1.14, 0.55, 0.54, and 0.47 percentage points quarter on quarter. The heavily held stock market values of the basic chemical and petroleum and petrochemical sectors ranked 7th and 14th among first-level sectors, with proportions of 3.38% and 1.37%, respectively, changing by -0.67 and 0.54 percentage points quarter on quarter. Risk warnings: 1. The risk of intensified international trade friction, 2. The risk of a sharp rise in raw material prices, 3. The risk of downstream demand falling short of expectations, 4. The risk of project commissioning falling short of expectations, etc.