"Anti-involution" gains momentum! Supply cleared + valuations bottomed out: Is the spring for the chemical sector coming?

Amid the resonance of anticipated demand recovery and industry self-discipline, the long-slumbering chemical industry is beginning to show signs of a cyclical reversal.

On Monday, November 10, the phosphorus chemical sector continued last week’s strong performance, with Chengxing Co. achieving three consecutive rising sessions. Stocks such as Yuntu Holdings and Qingshuiyuan also followed suit.

Behind this rally is the surge in energy storage demand leading to a recovery in the industry chain, as well as price rebound expectations brought about by “anti-involution” self-disciplined production cuts across multiple sub-sectors. Market sentiment is shifting from pessimism to cautious optimism.

Meanwhile, a recent acquisition from across the ocean has injected even more imagination into the market. Recently, Warren Buffett’s Berkshire Hathaway announced its acquisition of OxyChem, the chemical business under Occidental Petroleum. According to Dongfang Securities analysis, “this move is regarded as a precise cyclical timing investment,” betting that the U.S. rate-cutting cycle will spur a recovery in the real estate market, thereby boosting demand for chemical products such as PVC.

The combination of internal supply adjustment, external macro signals, and the “Buffett effect” is prompting investors to re-examine the value of the chemical sector. According to Huachuang Securities, the chemical industry currently features “bottom, underweight, and high elasticity.” As the earnings blackout period arrives, a new window for year-end allocation may be opening.

With chemical ETF ROE rebounding to 9% in the first half of 2025, PB has hit a new low (1.65) since 2012. Bottom + underweight + high elasticity are key factors for incremental funds choosing chemicals. Once the PPI year-on-year turning point rises, with low inflation and overseas rate cuts, a new round of passive destocking and restocking cycles may begin. Chemicals are precisely the varieties most sensitive to inventory cycles.

“Anti-involution” persists, industry self-discipline reshapes supply and demand

Against the backdrop of three consecutive years of declining overall industry profits, achieving self-rescue through supply-side reform is increasingly becoming a consensus among chemical sub-sectors. According to a CITIC Securities report, multiple sectors have actively responded to the call for “anti-involution” this year, pushing industry self-discipline in hopes of reshaping supply-demand balance.

The linkage of policy and industry is especially notable. According to Huachuang Securities, the Ministry of Industry and Information Technology recently joined industry associations and six leading companies for a PTA industry development meeting, aiming to prevent involutive competition. The PTA sector structure is relatively concentrated—“CR6 market share totals 67%, providing a basis for supply-side coordination.” In addition, the caprolactam industry also convened on November 5, deciding to cut production by 20% and raise product prices.

These actions are not isolated. The organic silicon sector expects no new capacity from 2025 to 2026, with promising prospects for profit recovery; coal chemical and polyester filament industries, given their high concentration, also show strong willingness for coordinated production cuts by leading companies. Huachuang Securities analysts point out, “With the Central Financial Committee’s meeting clearly calling for ‘anti-involution’, another supply-side upgrade could mark the start of this round of chemical sector reversal,” and they believe this “may facilitate earlier confirmation of the industry’s inflection point.”

Valuation and price spreads bottom out, allocation window may have arrived

By various indicators, the chemical industry is already at a historical bottom. Data from Huachuang Securities shows that while the overall weighted operating rate in the sector is at a historical high, price spreads remain at an “absolute bottom.” Analysts from the institution believe that although a full reversal will still require further destocking, select varieties have already begun showing bottom-out trends.

Valuation is a key factor attracting incremental capital. According to a Huachuang Securities report, with chemical ETF ROE rebounding to 9% in the first half of 2025, price-to-book ratio (PB) has hit a new low (1.65) since 2012. The combination of “bottom, underweight, and high elasticity” makes the chemical sector a key focus for additional capital.

Huachuang Securities further notes that with third-quarter reports now fully disclosed, the market will enter a five-month earnings blackout period. This provides a window for investors to position ahead for next year and for style rotation. Once PPI (Producer Price Index) year-on-year inflection point rises, a new inventory cycle may begin—and chemicals are among the industries most sensitive to inventory cycles.

Buffett “bottom-fishing” OxyChem: a recovery opportunity for MDI and PVC?

Buffett’s latest move offers a new perspective for judging the global chemical cycle. Berkshire Hathaway recently announced the acquisition of Occidental Petroleum’s chemical subsidiary OxyChem for $9.7 billion in cash.

Dongfang Securities analyst Ni Ji analyzes that this can be seen as a precise timing investment. OxyChem’s core business is chlor-alkali chemicals, with PVC as its main product, which is highly correlated with the U.S. real estate market’s prosperity. Amid widespread expectations of a U.S. rate-cutting cycle, the transaction is interpreted as a bet on chemical demand recovery driven by a real estate rebound.

The report further maps this logic to the Chinese market, identifying two product categories likely to benefit first. First is MDI (polyurethane): after years of consolidation, the sector structure is highly optimized, with Wanhua Chemical occupying a dominant position; future new capacity will mainly come from Wanhua, with extremely low supply elasticity. Once demand in Europe and the U.S. recovers along with a better macro environment, MDI’s outlook should markedly improve.

Second is PVC. Dongfang Securities believes Buffett’s investment may also reflect longer-term expectations for chlor-alkali chemicals. Although in recent years the PVC sector has faced the dual pressures of falling real estate demand in China and the U.S., and expanding supply, emerging economies (like India, Vietnam) have picked up a large amount of surplus supply. Looking ahead, as China’s PVC capacity expansion cycle winds down and emerging markets drive long-term demand, high-energy-consuming products like PVC are poised to follow MDI with a recovery in outlook.

Focus on three main tracks: phosphorus, silicon, and fluorine sectors offer elasticity

CITIC Securities believes the chemical sector is currently traded mainly around three major themes:

1) Energy storage demand boosts the chain’s outlook, upstream lithium battery materials supply-demand structure may be reshaped with emphasis on new energy-related materials targets;

2) Ongoing anti-involution in chemicals, with multiple sectors enforcing industry self-discipline, chemical product prices are expected to rebound from the bottom;

3) High industry prosperity in chemicals, with main businesses expected to maintain high growth.

Among numerous sub-sectors, Huachuang Securities particularly highlights the valuation elasticity of fluorine, silicon, and phosphorus. The report notes that these three industries are less sensitive to high oil prices, will see low supply increments in the next two years, and have distinct demand-side strengths:

Organic silicon and glyphosate may soon enter an inventory upward cycle, while refined fluorine chemicals may see capacity-cycle opportunities as semiconductor and AI materials drive demand.

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