Shenwan Hongyuan Group Co., Ltd. released a research report maintaining a "positive" rating for the basic chemical industry. The firm recommends cyclical positioning across four areas: 1) Textile and apparel chain, which has maintained high demand growth in recent years while supply-side production peaks have passed, leading to significantly improved supply-demand dynamics. Combined with overseas inventory at cyclical lows, domestic and international resonance trends are expected; 2) Agrochemical chain, supported by continued expansion of domestic and international cultivation areas, maintaining steady fertilizer demand growth, while rising GMO penetration rates support long-term upward pesticide demand; 3) Overseas intermediate and end-product inventories are at historical lows, with strengthening interest rate cut expectations and rising overseas real estate chain demand, warranting focus on export-related chemicals; 4) "Anti-involution" policies are intensifying, accelerating the clearance of backward production capacity. Growth focus should be on autonomous control of key materials.
**Q2 2025 Oil and Coal Prices Decline, Cost Pressures Significantly Ease, Industry Profits Recover Quarter-on-Quarter, Construction in Progress Continues to Fall**
Post-holiday restocking demand remained strong in Q2 2025, combined with declining oil and coal price centers, significantly easing cost pressures and warming industry profits quarter-on-quarter. Despite intensifying external environmental challenges, domestic "anti-involution" policy signals are being released. Combined with continuously falling construction in progress, chemical supply-demand balance sheets are marginally improving, with the cyclical bottom welcoming a long-term upward cycle.
Q2 2025 Brent spot prices averaged $68.03/barrel (YoY -20%, QoQ -10%), thermal coal market prices averaged approximately 643.00 yuan/ton (YoY -25%, QoQ +13%), and NYMEX natural gas futures averaged $3.51/million BTU (YoY +52%, QoQ -9%). Cost pressures significantly eased, leading to quarter-on-quarter profit recovery in the chemical sector.
According to company statistics, the chemical sector achieved revenue of 548.3 billion yuan in Q2 2025 (YoY +2%, QoQ +10%) and net profit of 35.5 billion yuan (YoY -5%, QoQ +8%), meeting market expectations. Post-holiday restocking demand gradually emerged, combined with some supply-side disruptions, improving chemical profitability quarter-on-quarter. Gross margins increased 0.3 percentage points quarter-on-quarter to 17.9%, while declining 0.05 percentage points year-on-year.
The current chemical industry's overall asset-liability ratio averages 50.0%, up 0.4% year-on-year, remaining in the historical low range. Q2 2025 fixed assets plus construction in progress increased 8.7% year-on-year and 3.1% quarter-on-quarter, with construction in progress declining 12.9% year-on-year and 4.4% quarter-on-quarter, marking three consecutive quarters of quarter-on-quarter decline and significantly slowing capital expenditure growth. Q2 2025 inventory increased 6% year-on-year but decreased 1% quarter-on-quarter, indicating an overall destocking phase.
From the 2025 semi-annual report sub-sector perspective, sectors with strong supply-side support and some with improving prospects, such as pesticides, fluorochemicals, potash fertilizer, coal chemicals, modified plastics, and polyester, showed significant year-on-year and quarter-on-quarter profit improvements.
According to Wind statistics, sub-sectors with the largest year-on-year net profit growth in the first half of 2025 were pesticides, fluorochemicals, potash fertilizer, and food and feed additives. Sub-sectors with significant declines included organic silicon, viscose, and soda ash. Industries showing continued Q2 2025 prosperity improvements, combined with falling oil and coal prices, included explosives, nitrogen fertilizer, fluorochemicals, adhesives and tapes, phosphate fertilizer and phosphochemicals, coal chemicals, polyester, and potash fertilizer.
**Future Outlook**
For traditional cyclical sectors, oil price centers are stabilizing at the bottom, with overall overseas inventories near 2021 lows. Combined with loosening domestic and international liquidity and clear overseas tariff expectations, demand is expected to turn upward in the long cycle. On the supply side, chemical sector capital expenditure is nearing completion, with construction in progress declining quarter-on-quarter for three consecutive quarters. Combined with intensifying "anti-involution" policies, certain high-energy consumption and backward capacity exits are confirmed, and small and medium enterprises are accelerating clearance, significantly improving supply-side margins.
Priority should be given to demand-led opportunities, focusing on high-growth textile and apparel chains, agrochemical chains, and export chains, followed by supply-side beneficiaries from "anti-involution" policies.
**Key Materials Domestic Substitution Demand Strong, Focus on Semiconductor, AI+, Robotics and Other Key Industrial Transformations**
Semiconductor industry chain autonomous control awareness is strengthening, with panel and packaging materials developing rapidly. High-performance materials and additives domestic substitution trends are imminent. AI+ robotics materials market space is vast. Focus should be on targets with low valuations and performance certainty.