The Zhitong Finance App learned that China Merchants Securities released a research report saying that on the supply side, under the guidance of carbon peak and carbon neutrality policies, supply in the chemical industry will continue to be restricted, and the elimination of lagging inefficient production capacity will further concentrate market share on leading companies; on the demand side, with inventory pressure gradually easing and the macroeconomic environment expected to improve marginally, demand in the basic chemical industry is expected to continue to improve.The prosperity of the industry is expected to bottom out and marginal improvements will be achieved, thus bringing structured investment opportunities to the basic chemical industry.

▍ The main views of China Merchants Securities are as follows:

The performance of the basic chemical industry in the third quarter of 2023 is under pressure.

In the first three quarters of 2023, the basic chemical industry (CITIC) achieved total operating income of 1855.7 billion yuan, a year-on-year decrease of 4.64%; net profit of 109 billion yuan was realized, a year-on-year decrease of 49.61%. Among them, in the Q3 quarter of 2023, the basic chemical industry achieved total operating income of 654.1 billion yuan, an increase of 2.14% over the previous year and an increase of 4.69% over the previous year;

Net profit was realized at 37.5 billion yuan, down 31.64% year on year and 2.74% month on month. The main reason is that the demand side of the market is weak, and at the same time, production capacity on the supply side has not been effectively cleared, so chemical commodity prices and profits are at the bottom.

In the first three quarters of 2023, the financial indicators of the basic chemical industry deteriorated slightly.

As of the end of the third quarter of 2023, the total assets of the basic chemical industry were 4.13 trillion yuan, up 14.81% year on year, balance ratio was 46.85%, up 0.2 pct year on year; the basic chemical industry was 88.8 billion yuan under construction in the third quarter of 2023, up 22.62% year on year. The overall chemical industry was under pressure, downstream demand was weak, industry capital expenditure was tightened, and the scale of projects under construction slowed down year on year;

In the first three quarters of 2023, the net cash flow from operating activities of the entire industry was 158.2 billion yuan, a year-on-year decrease of 15.66%. A total of 24 sub-industries had negative year-on-year growth, and most sub-industries had poor cash flow conditions; in the third quarter of 2023, basic chemical industry inventories totaled 381.8 billion yuan, down 0.31% year on year; inventory turnover days were 69 days, up 8.11% year on year.

The industry supply and demand pattern is expected to continue to improve.

On the supply side, under the guidance of carbon peak and carbon neutrality policies, supply in the chemical industry will continue to be restricted, and the elimination of lagging and inefficient production capacity will push market share to further concentrate on leading enterprises; on the demand side, with inventory pressure gradually easing and the macroeconomic environment expected to improve marginally, demand in the basic chemical industry is expected to continue to improve.

The prosperity of the industry is expected to bottom out and marginal improvements will be achieved, thus bringing structured investment opportunities to the basic chemical industry.

Risk warning:

Safety and environmental risks; risk of continued low demand; risk of falling product prices; risk of international trade friction; risk of project investment falling short of expectations; risk of rising raw material prices; risk of exchange rate fluctuations.