Investment Highlights:
Weekly sector performance: This week, the Shanghai Composite Index rose 1.7%, the ChiNext Index gained 8.58%, the CSI 300 increased 2.37%, the CITIC Basic Chemical Index climbed 3.16%, and the Shenwan Chemical Index advanced 2.46%.
Chemical sub-sector performance: The top five performing chemical sub-sectors this week were modified plastics (12.91%), electronic chemicals (6.38%), rubber products (5.43%), membrane materials (5.32%), and other chemical raw materials (4.31%). The bottom five performers were compound fertilizers (-1.82%), nylon (-0.54%), dyeing and printing chemicals (0.05%), food and feed additives (0.55%), and soda ash (0.59%).
Major Industry Developments:
Covestro cuts TDI supply to Chinese market by another 15%. Global polyurethane giant Covestro recently issued warnings to customers that the tight supply situation for TDI (toluene diisocyanate) will continue to deteriorate. According to the latest notice, Covestro will further reduce its supply to the Chinese market by 15% in August, on top of previous significant supply cuts. Among Covestro's three major TDI production bases globally, only the Shanghai plant maintains normal operations. The German plant continues to be shut down due to force majeure, with restart timing still unclear. The US plant will enter a one-month planned maintenance period in September, while the Shanghai plant will also begin an extended overhaul in Q4, meaning Covestro's supply tightness will persist at least until February next year.
Hengli Petrochemical's two subsidiaries plan absorption merger. On the evening of August 15, Hengli Petrochemical Co.,Ltd. announced an absorption merger between wholly-owned subsidiaries. The announcement shows that Hengli Petrochemical's wholly-owned subsidiary Hengli Refining will absorb and merge with another wholly-owned subsidiary Hengli Chemical. After completion of the absorption merger, Hengli Refining will continue operations while Hengli Chemical will be legally deregistered, with all assets, creditor's rights, debts and other rights and obligations of Hengli Chemical to be legally inherited by Hengli Refining. The company authorized management of Hengli Petrochemical, Hengli Refining and Hengli Chemical to handle specific matters related to this absorption merger and fulfill other procedures required by laws, regulations or regulatory requirements. This absorption merger will help further optimize the company's management structure, improve operational efficiency, optimize resource allocation, reduce management costs, fully leverage resource integration synergies, and promote enterprise quality and efficiency improvements.
Investment Theme 1: Domestic tire companies have developed strong competitiveness, with scarce growth targets worth attention. The global tire industry has broad market space, with domestic tire companies developing rapidly. Recommended focus: Sailun Group, Sentury Tire, General Co Ltd, and Linglong Tire.
Investment Theme 2: Consumer electronics expected to gradually recover, focus on upstream material companies. As downstream consumer electronics demand gradually warms and recovers, panel supply chain related targets are expected to benefit significantly. Some domestic companies have successfully achieved import substitution in certain segments of the panel supply chain, entering the supply chains of leading downstream panel manufacturers with sufficient alpha attributes. As panel supply chain prosperity is expected to improve, leading display material manufacturers are expected to enjoy industry beta resonance. Recommended focus: Dongcai Technology (core optical film target, electronic resin steady volume growth), S-Tech (OCA optical adhesive leading enterprise), Lightec, and Ruilian New Materials (OLED intermediates and liquid crystal materials producer).
Investment Theme 3: Focus on cyclical industries with strong resilience and inventory destocking leading to bottom reversal. (1) Phosphorus chemicals: Supply side constrained by environmental policies, with limited expansion capacity for phosphate ore and main downstream products, combined with growing new energy demand, supply-demand dynamics tightening. Phosphate ore resource attributes becoming prominent, supporting industry chain prosperity. Recommended focus: Yuntianhua, Chuanheng, Xingfa Group, and Batian. (2) Fluorochemicals: Second-generation refrigerant production quota accelerated reduction supporting high-level profit stability, third-generation refrigerant production quota implementation imminent welcoming prosperity recovery, high-end fluoropolymers and fine fluorochemicals developing rapidly, fluorite demand resource attributes strengthening with staged high prices. Recommended focus: Jinshi Resources (leading fluorite resource reserves and growth), Juhua Group (refrigerant leading enterprise), Sanmei, Yonghe, and Zhongxin Fluoride Materials. (3) Polyester filament: Inventory destocking to low levels, fully benefiting from downstream textile and apparel demand recovery. Recommended focus: Tongkun Group and Xinfengming Group.
Investment Theme 4: Economic improvement and demand recovery, leading blue-chips fully benefiting. As domestic and international economies warm up, major chemical product prices and demand are entering recovery channels. Leading chemical companies have gained significant scale advantages through years of competition and expansion, continuously strengthening cost moats through R&D investment, with notable core competitiveness. Under the dual resonance of demand recovery and price warming, leading blue-chips with scale and cost advantages have greater elasticity. Recommended focus: Wanhua Chemical, Hualu-Hengsheng, and Baofeng Energy.
Investment Theme 5: Focus on vitamin varieties with supply disruptions. BASF announced force majeure affecting vitamin A and E supply, impacting current market supply. With the arrival of vitamin purchasing peak season, supply-demand imbalance will become more prominent. Recommended focus: Zhejiang Medicine and NHU.
Risk Warnings: Macroeconomic downturn; significant oil price fluctuations; downstream demand below expectations.