Chemical industry’s “good start” in the Year of the Horse: valuation recovery ends, price hike realization begins!

```

On February 24, the first trading day of the Year of the Horse, the A-share chemical sector continued to rise during trading hours. Sub-sectors such as phosphate chemicals and pesticides performed strongly, with numerous stocks hitting their daily limit. Liuguo Chemical, Yuntu Co., Yuntianhua, and Hubei Yihua hit their limit in the afternoon, while Meibang Co., Chitianhua, and Kingenta were previously sealed. Sierte, Xinyangfeng, and Yangnong Chemical saw leading gains.

The latest report from Guotou Securities points out that after four years of decline, the chemical industry is now at the threshold of a reversal. Multiple indicators show the industry has basically bottomed out, and 2026 is expected to be a cyclical turning point.

In terms of prices, the China Chemical Product Price Index (CCPI) stood at 3,930 points on December 31, 2025, down 39% from the 2021 peak and at the 23rd percentile over the past five years, having entered a historically low range. In terms of profitability, the basic chemical sector achieved a net profit attributable to the parent of 112.7 billion yuan in the first three quarters of 2025, up 7.5% year-on-year, showing the sector has initially stabilized.

More crucially, industry capital expenditures decreased by 18.3% year-on-year, showing negative growth for seven consecutive quarters since Q4 2023. Measured by indicators such as projects under construction/fixed assets and capital expenditure/revenue, the supply expansion phase has ended, and the capacity cycle is reaching a turning point.

Based on this, the report judges that post-holiday, the market will switch from the valuation repair stage of “weak reality, strong expectations” to the verification period of whether price increases can be sustained. In the short term, focus will be on the dye industry chain and TMP (Trimethylolpropane); with the peak “Golden March, Silver April” season approaching, low-inventory chemical fiber and elastic phosphate chemical products offer layout opportunities.

Dyes: First round of price increases validated, intermediates may rise above expectations

The dye sector is one of the sub-industries where the chemical price increase logic has been most fully realized. According to Baichuan Yingfu data, as of February 22, the price of disperse dyes was 21,000 yuan/ton, up 23.53% so far this year; reactive dyes were 23,000 yuan/ton, up 4.55%.

Guotou Securities points out that the core driver of this round of dye price increases comes from the irreversible concentration in the intermediate segment. The price of the intermediate reducer for disperse dyes has risen to 70,000 yuan/ton, up 45,000 yuan/ton from previous lows; the intermediate H acid for reactive dyes, due to force majeure in 2025, has seen supply shrinkage and also has potential for price elasticity.

The team compares dye intermediates to citral in the VA industry chain, suggesting both have complex synthesis processes, highly concentrated production under oligopolies, and a high cost proportion for intermediates in downstream costs but very low end-product cost proportion for dyes. Thus, price transmission is relatively smooth. Currently, other intermediates like m-phenylenediamine, m-aminophenol, hexachlor, and hexabrom have not started price increases. Leading companies are expected to consolidate downstream dye price increase expectations via sequential price increases for intermediates, potentially exceeding expectations.

TMP: Supply-demand mismatch and cost resonance, boom may exceed expectations

TMP (Trimethylolpropane) has become one of the most dazzling gainers among chemical products. According to Baichuan Yingfu, as of February 22, TMP was priced at 12,000 yuan/ton, up 43.71% since the beginning of the year.

Guotou Securities believes this TMP rally is driven by dual resonance of supply-demand mismatch and cost push. On the supply side, a sudden production reduction in Ningxia combined with maintenance in Hebei has created a short-term supply gap; in the long term, Wanhua Chemical’s 50,000 tons/year TMP capacity will be converted to neopentyl glycol, and overseas capacity is weakening due to high energy and labor costs, indicating a continued supply shrinkage trend.

On the demand side, TMP is a core raw material for UV-cured coatings, new energy materials, and pharmaceutical intermediates. Demand continues to release as PVC product exports recover and the new energy industry upgrades. On the cost side, the price of raw material n-butyraldehyde has risen 7.69% this year, while the price of by-product calcium formate has fallen, further squeezing production profits, with manufacturers strongly inclined to hold prices.

The report believes TMP is currently in a dual resonance period supported by supply-demand mismatch and costs, and the industry boom may evolve from short-term price pulses to a mid- to long-term profit center rise.

Chemical fiber: Peak season “Golden March, Silver April” approaching, elasticity expected in low-inventory varieties

The report notes “Golden March, Silver April” is the traditional peak demand season for chemical fibers; post-holiday downstream resumption and peak-season restocking combine to provide elasticity to low-inventory products.

For polyester filament, coordinated production reduction is advancing successfully, low inventory prepares for Q2 peak season. Mainstream factories began a new round of production cut in late December 2025. Based on a 15% reduction for the three major filament plants, industry capacity utilization during the Spring Festival may drop to 71%-72%, the lowest in nearly three years (excluding pandemic years). As of February 12, mainstream POY inventory was only 11.7 days, a historically low level.

For viscose staple fiber, high operating rates and low inventory provide upward price elasticity. Industry operating rate reached 88.45% as of February 13, a historically high level, while factory inventory dropped to 94,500 tons, the lowest in nearly a year. No new capacity is expected for the industry in 2026; demand from cotton price increases and new vortex spinning equipment may further boost demand, with supply-demand balance expected to stay tight.

For polyester bottle-grade chips, industry operating rates continue to fall, profitability expected to accelerate recovery. Under “anti-involution,” supply side keeps shrinking, operating rates dropped from 76.05% at the beginning of the year to 70.89%. Current average profit is about 14.02 yuan/ton, up 115.15 yuan/ton from last month, turning loss into profit. According to Baichuan Yingfu, as of February 14, 2025, about 5.22 million tons capacity is or will be in shutdown, under-utilization or conversion, accounting for approximately 24.1% of total capacity.

Phosphate chemicals: Strategic attributes elevated, new energy drives optimistic supply-demand expectations

The phosphate chemical sector has recently received additional geopolitical catalysts. According to World Agrochemical Network, Trump signed an executive order on February 18 invoking the Defense Production Act to designate elemental phosphorus and glyphosate herbicides as key national defense materials, raising the strategic value of phosphorus in U.S. policy. Guotou Securities believes this means phosphate mines will be revalued with an added layer of geopolitical attributes; as China has the most complete phosphate chemicals industry chain in the world, leading companies' international competitiveness is expected to strengthen.

Industrial monoammonium phosphate (MAP): The rapid capacity expansion cycle from 2.29 million tons in 2021 to 4.84 million tons in 2025 has ended, with only three new plants totaling 380,000 tons expected before 2028. On the demand side, iron phosphate-based production is expected to add 750,000 tons in 2026 and 730,000 tons in 2027, making MAP a key strategic material with strong resource attributes and high prosperity sustainability.

Phosphoric acid: According to Argus, there will be a ten-thousand-ton supply-demand gap in global phosphoric acid balance sheets until the second half of 2026, with the market likely to remain strong in the first half. According to SMM New Energy, global power battery output in 2025 will be about 1,421 GWh, up 36% year-on-year; according to ICC Xinluo Information, global energy storage battery shipments will be 640 GWh in 2025, up 82.9% year-on-year, and expected to reach 1,090 GWh in 2026, effectively boosting phosphoric acid demand.

Yellow phosphorus: Policies are strictly controlling new capacity additions; recently, sulfur prices surged (up 113.92% year-on-year to 4,150 yuan/ton as of February 22), possibly activating short-term substitution demand for thermal-process phosphoric acid and driving yellow phosphorus demand growth.

Rebound or reversal? Demand is the ultimate test

From a macro perspective, the underlying logic of the current chemical market has seen positive changes. Industry price levels have fallen into their historical lows, profitability has stabilized and rebounded, and capital expenditure has seen seven consecutive quarters of negative growth, indicating the supply expansion phase has mostly ended.

Meanwhile, European chemical capacity is shrinking rapidly. Chinese companies are capturing global market share with scale and cost advantages. Of 86 key chemical products under close monitoring, 60% had export volumes in 2025 reaching six-year highs.

However, a real recovery in demand remains the biggest uncertainty. Chemical products downstream cover buildings, automotive, home appliances, textiles, and other fields. Aside from a few tracks like new energy, overall demand has not seen broad, strong recovery. If raw material price increases cannot be smoothly transmitted to the end, midstream manufacturing profits will be under pressure. The pace of downstream resumption and restocking after the Spring Festival will be the key observation window to judge whether the market moves from "rebound" to "reversal".

Risk warning and disclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial status, or needs. Users should consider whether any opinions, views, and conclusions herein fit their specific circumstances. Invest accordingly, at your own risk. ```