CICC's 2026 oil and gas chemical outlook: Dawn is already recovering
The Zhitong Finance App learned that CICC released a research report saying that the downward cycle of the petrochemical industry has continued for about 3 and a half years. As the industry's capital expenditure continues to decline and overseas backward production capacity rapidly withdraws, the bank believes that the industry's production capacity will enter a stage of low growth. At the same time, the anti-domestic market, which mainly focuses on industry self-discipline, has also accelerated profit recovery for related products. As supply-side favorable factors continue to accumulate and demand in fields such as new energy sources rapidly grows, the bank anticipates that an inflection point in the chemical industry cycle is expected to arrive.
CICC's main views are as follows:
The downward cycle of the chemical industry has continued for 3 and a half years, and the chemical price index and profit margin are both low. Affected by the industry's supply and demand pattern and the fall in upstream raw material prices, China's chemical product price index has declined by 10.3% since the beginning of 2025, and is currently in the 10.4% position since 2012. The downturn cycle of the midstream chemical industry has continued for 3 and a half years since 2H22. The total profit/operating income ratio of chemical raw materials and products from January to October 2025 was 4.14%, which is the lowest level since 2017. The gross margin/net profit margin of 3Q25 listed petrochemical companies was 15.9%/4.6%, which was also low in the past few years.
Production capacity in the chemical industry will enter a stage of low growth, and reverse internal circulation will accelerate profit recovery.
Capital expenditure continues to decline and backward overseas production capacity is being withdrawn at an accelerated pace, and the industry's production capacity is expected to enter a stage of low growth. The capital expenditure of listed petrochemical companies decreased by 18.3%/10.1% in 2024/1-3Q25, and projects under construction in 3Q25 decreased by 13.2% year-on-year. The fixed assets + projects under construction of listed petrochemical companies in 3Q25 increased 6.8% year-on-year, the lowest growth rate since 1Q18. Since 2023, backward production capacity from overseas, such as Europe, Japan, and South Korea, has been withdrawn at an accelerated pace, helping to ease the contradiction between global supply and demand for related products.
In terms of anti-internal circulation, the bank expects that the policy side may focus on controlling the pace of new production capacity and upgrading of backward production capacity; at the same time, profits in most sub-industries have been under pressure for a long period of time, making production companies' demand for profit higher and higher, and the phenomenon of anti-internal circulation through industry self-regulation and production cuts will gradually spread.
The growth rate of demand for bulk chemicals is resilient, and overseas markets are watching the progress of US real estate recovery. According to CICC Real Estate and Space Services, the year-on-year decline in total housing transactions will continue to narrow under a neutral scenario in 2026, and the bank believes that real estate will still further weaken its impact on the growth in demand for related chemicals. Meanwhile, the CICC Macro Group expects that in 2026, China's demand-side policy will be moderately increased to achieve economic growth of about 5%. The bank expects that domestic chemical demand growth will still be supported.
It is worth focusing on early-cycle varieties of chemical fiber. The apparent consumption of polyester filament, spandex, nylon filament, etc. continued to grow rapidly in 2020-24. The bank expects that in 2026, chemical fiber will still be the type with a rapid growth rate in demand among major chemicals. On the overseas side, traditional industries such as manufacturing and real estate in the US were clearly under pressure in 2025. Since March 2025, the US manufacturing PMI has continued to be below 50, and the utilization rate of industrial production capacity in the 27 EU countries is at a historically low level. Overseas markets need to focus on the recovery progress of the US real estate market driving demand for chemicals.
On December 11, the net market ratio of basic chemicals (CITIC) was 2.43x, which is 46% since 2012; the net market ratio of China Securities segmented chemicals market is 2.31x, which is 43% since 2012. As favorable factors on the supply side of midstream chemicals continue to accumulate and demand for materials in the new energy sector grows rapidly, the bank believes that an inflection point in the industry's production capacity cycle is expected to arrive, which will drive the improvement of the industry's supply and demand pattern and boom.
The bank is optimistic: 1) leading chemical companies with low valuations and a large profit increase in 2026; 2) the chemical fiber industry chain, which is expected to reach an inflection point in 2026, such as PTA/polyester filament, spandex, MDI, TDI, silicone, caprolactam, polyester bottles, acetic acid, etc., is optimistic that potash fertilizer with low production capacity and the industry's self-regulatory refrigerant boom will continue under quota restrictions; 3) the continued rapid growth in demand for lithium battery materials is expected to drive a recovery in profits in emerging industries such as AI and robots.
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