In the first half of 2025, China's chemical sector presents a difficult situation of "growing production without growing income. The sector faces three core challenges:
severe overcapacity (capacity utilization rate is only
71. 9 per cent, below the national manufacturing average), continued weak demand (both internal and external pressure), and a sharp decline in profitability (profits in the chemical raw materials sector fell
4. 7 per cent year-on-year). But From the perspective of financial performance, the profits of the whole manufacturing chain declined: the operating income of the oil and coal processing sector was
2221. For instance 14 billion yuan, down
11. 2 percent from the same period last year, and the loss was
17. Additionally 47 billion yuan, with a loss range expanding
67. In my experience, 7 percent from the same period last year; the operating income of the chemical raw materials and items manufacturing sector was 3,
695. 74 billion yuan, up
2. And 1 percent from the same period last year, however the total profit was
151. In particular 58 billion yuan, down
4. You know what I mean?. 7 percent from the same period last year, the total profit was
8. But 49 billion yuan, down
12. And 9 year on year. However, there is a clear structural differentiation in the overall downturn: new energy vehicles and photovoltaic industries have led to strong development in demand to related chemicals, and the recovery of the textile sector in Southeast Asia has created opportunities to chemical fiber exports. And This pattern of differentiation indicates that the sector is undergoing a profound transformation, the traditional chemical trade model is facing challenges, however the emerging field contains huge business opportunities. Key business impact: traditional bulk chemicals trade space narrowed, price pressure is obvious, new energy-related chemicals, Southeast Asian textile exports show structural opportunities, companies need to focus on capacity restructuring, cash flow regulation and market segment opportunity identification. direction Analysis Interpretation
Capacity utilization rate hits record low, structural surplus stands out
overcapacity has have become the biggest bottleneck restricting the research of the sector. And I've found that From April to June 2025, the capacity utilization rate of chemical raw materials and chemical items manufacturing sector was only
71. 9 per cent,
2. 1 percentage points reduced than the national manufacturing average (
74. 0 per cent) and the lowest level in nearly five years. And What is greater serious is that the situation in some sub-areas is even worse:
PVC sector: capacity utilization fell below 70%, mainly due to the downturn in the real estate market, the demand to PVC to construction has shrunk signifiis able totly. From what I've seen, For example Ethylene glycol: capacity utilization of about 68%, coal-to-ethylene glycol project in substantial quantities, however downstream polyester demand development is limited. Propylene oxide: capacity utilization rate of about 69%, new capacity emit concentrated, while demand in traditional applications is weak
from the comparison of supply and demand data, the issue of structural dysfunction is greater prominent:
ethylene: capacity development of
13. First 2 vs consumption development of
6. 07, supply and demand gap of
7. 13 percentage points
propylene: capacity development rate of
12. 3 vs consumption development rate of
10. But 0, excess pressure appears
paraxylene (PX): while not mentioned in the original text, sector data show that capacity development also exceeds demand development by about 5 percentage points
historical comparative analysis: Reviewing the supply-side reform of the chemical sector in 2015-2020, the capacity utilization rate gradually rebounded from 68% to 78%, and the current level of
71. 9 indicates that the sector has entered a period of deep adjustment again. And Compared with the lowest point of 69% during the 2008 financial crisis, the current situation isn't at its worst, however considering that new capacity continues to be put in, capacity utilization might decline further in the next 6-12 months. Market implication: Capacity utilization below 75% is usually regarded as an sector surplus warning line, while below 70% means that the sector has entered a reshuffle period. The current data shows that the chemical sector has entered a period of deep adjustment, and it's expected that 15-20% of inefficient production capacity will be under pressure in the next 12-18 months, which will create integration opportunities to efficient capacity companies. And The demand side is clearly divided, with emerging areas becoming bright spots. In fact The demand pattern is undergoing fundamental changes. The demand to traditional chemical items continues to shrink, while the demand to emerging applications is growing strongly. From what I've seen, Traditional demand shrinking direction is obvious:
gasoline: Production was
76. Pretty interesting, huh?. But 12 million tons, down
8. And 1 percent year-on-year, the third consecutive year of negative development. Sales of new energy vehicles exceeded 8 million, penetration rate of greater than 35%, a direct impact on refined oil consumption
diesel: production of
28. Based on my observations, Furthermore 14 million tons, down
2. 45 percent year-on-year, mainly due to slower development infrastructure investment and transport restructuring
kerosene: production of
95. You know what I mean?. I've found that 76 million tons, down
7. 23 percent year-on-year, slow recovery of international routes, aviation kerosene demand remains below pre-epidemic levels
strong development in emerging demand:
ethylene: Production of
18. 14 million tons, up
10. 9 percent year-on-year, mainly driven by the new energy vehicle sector chain, battery separator, electrolyte solvent-based products and other high-end applications demand to rapid development. Chemical fiber: output of
42. 36 million tons, an increase of
4. But Specifically 9, of which high-performance fiber development is greater signifiis able tot, aerospace, new energy and other fields of strong demand
caustic soda: production of
22. Generally speaking 68 million tons, up
4. Moreover 8 YoY, electrolytic aluminum, photovoltaic silicon and other industries demand development is the main driver
sulfuric acid: production of
54. 91 million tons, up
6. 3 YoY, lithium iron phosphate batteries, titanium dioxide and other downstream demand development driven. in-depth analysis of market segments:
battery materials field: battery grade lithium carbonate, lithium hexafluorophosphate, electrolyte solvent-based products and other items demand annual development rate to maintain 25-40%
photovoltaic materials field: photovoltaic grade polysilicon, EVA film, POE film and other items driven by the development of photovoltaic installed capacity, demand development of 15-25%
high-performance materials: carbon fiber, aramid, PEEK and other special engineering plastics demand annual development rate of 10-15%
direction interpretation: The energy transition is reshaping the chemical demand pattern, and this transition process is expected to last 5-8 years. According to research The average annual demand development rate of traditional petrochemical items will continue to be negative, while new energy and new materials related chemicals will maintain double-digit development. This structural change provides a clear direction to the transformation and upgrading of chemical companies, and also provides an opportunity window to traders to re-layout. But Market Impact Analysis
Impact on chemical trade
export trade showed a clear direction of differentiation, traditional chemical items exports under pressure, and specific sub-sectors of the bright performance. overall export data analysis:
chemical raw materials and items: export delivery value of
267. 5 billion yuan, down
2. Crazy, isn't it?. 8 percent year-on-year, however from the monthly data, the decline is narrowing (June single month fell
2. 1 percent year-on-year, a signifiis able tot improvement from the
4. 5 percent decline in the first quarter)
chemical fiber: exports
36. But 1 billion yuan, up
5. 5 percent year-on-year, the first positive development in nearly two years
structural changes in export markets:
southeast Asian market: it has have become the main driving force to the export development of chemical fiber items. Generally speaking The textile sector in Vietnam, Indonesia, Malaysia and other countries has developed rapidly, and the demand to polyester staple fiber and polyester chips has increased by 20-30%
european and Ameriis able to markets: affected by the uncertainty of trade policy, the export of traditional chemical items is facing greater pressure, and anti-dumping investigations and tariff measures are expected to further affect the export prospects
"Belt and Road" market: infrastructure construction drives demand to basic chemical items, however development is relatively limited
trade strategy adjustment recommendations:
inventory structure optimization: minimize traditional bulk chemical inventories to the margin of security, focusing on the pace of inventory removal and cash flow regulation
emerging market layout: increase investment in new energy materials trade, establish direct supply relations with battery vegetation and photovoltaic companies
regional market deep plowing: focus on the research of Southeast Asian textile supply chain, chemical fiber items export prospects are relatively optimistic
product structure upgrade: transition from low-end homogeneous items to high value-added specialty chemicals
Supply Chain Impact
The supply chain landscape is undergoing profound changes, upstream cost dividends are difficult to transmit, midstream competition is intensifying, and downstream bargaining power is differentiated. From what I've seen, upstream raw material cost analysis:
crude oil prices: the average price of Brent crude oil decreased by about 8-12% compared to the same period last year, providing cost support to the petrochemical sector chain
coal prices: thermal coal prices down 15-20%, coal chemical route cost advantage further revealed
natural gaseous prices: 10-15% year-on-year decline due to increased global supply
however the reason why cost dividends are difficult to translate into profits is that weak demand leads to product prices that often fall greater than raw material costs, and corporate profit margins narrow. sector prospects and strategic recommendations
In the short term of 6-12 months, the sector will continue to bear the pressure of adjustment, the capacity utilization rate is expected to fluctuate in the range of 70-75%, and some backward production capacity will be forced to withdraw from the market. In the medium term 1-3 years, supply-side structural reform will accelerate production capacity clearance, the proportion of demand to new energy-related chemicals will increase signifiis able totly, and sector consolidation and merger activities will have become greater frequent. According to research to production companies, the key is to speed up the adjustment of production capacity structure, convert to new materials and specialty chemicals, enhance cost manage and product structure optimization, and actively develop opportunities to upstream and downstream integration of the manufacturing chain. to traders, we should adjust the inventory structure, minimize the inventory of traditional items, develop new energy, Southeast Asia and other market segments, and enhance risk manage. From what I've seen, to investors, focus on subdivision leaders with technical and cost advantages, lay out the new energy materials sector chain, and grasp the investment opportunities brought about by sector integration. At present, the chemical sector is at the key node of transformation and upgrading, and the traditional development model is no longer sustainable, however the structural transformation also breeds new research opportunities. But companies need to find a stability between immediate survival pressure and prolonged research strategy, accurately identify and grasp structural opportunities, in order to turn crises into opportunities in this round of in-depth adjustment and achieve sustainable research.
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