Is the Chemical Sector's Strategic Window Period Opening? Fund Managers Decode 2026 Gold-Digging Opportunities

In March 2026, Middle East geopolitical conflicts continued to escalate, nearly halting shipping through the Strait of Hormuz. International oil prices repeatedly broke through $100 per barrel, with Brent crude briefly exceeding $110. This “energy bottleneck” has caused significant cost shocks and supply disruptions in the global chemical industry chain.

The A-share market has recently experienced volatility and adjustments. The chemical sector, driven by the traditional “Golden March” season and geopolitical disturbances, has shown a pattern of initial rallying followed by sector differentiation.

How will this round of rising energy costs impact the chemical industry? Is the industry entering a “strategic window”? Which sub-sectors are more worth watching?

To explore these questions, China Fund News interviewed:

• Zhang Chaoliang, Fund Manager of the Index Investment Department at Harvest Fund, and manager of the Chemical ETF
• Yan Dong, Fund Manager of Penghua Chemical ETF
• Wang Yu, Fund Manager of Guotai Chemical ETF
• Rui Dingkun, Fund Manager of Minsheng JiaYin Fund

According to these fund managers, after experiencing a four-year “cyclical winter,” the chemical industry is now at the beginning of a new cycle. The core logic centers on “cycle reversal,” with a focus on cost substitution, anti-inflation, and emerging demand sectors. They believe that, at this point, the chemical sector has medium-term investment value and is suitable for gradual deployment.

Structural Impact of Rising Energy Costs on the Industry

China Fund News: Currently, the near shutdown of shipping through the Strait of Hormuz due to Middle East conflicts has caused oil prices to surge past $100. How do you see this round of energy cost increases affecting the chemical industry? Which segments might benefit, and which might face pressure?

Yan Dong: First, crude oil, as the upstream core raw material of the chemical chain, sees its price rise transmitted through the “crude oil → basic chemicals → fine chemicals and materials” pathway. Additionally, the Middle East is a key import source for China’s methanol, sulfur, and other chemicals. Shipping disruptions directly lead to supply-demand tensions and soaring logistics costs.

Beneficiaries include:

• Coal chemical routes (when Brent exceeds $80/barrel, processes like coal-to-olefins and coal-to-methanol gain cost advantages and profit margins expand)
• Resource-based chemicals (phosphates, potash, urea, methanol, which are directly affected by Middle Eastern supply)
• Restricted supply varieties (refrigerants, organosilicon compounds, which can better pass on costs and widen margins)
• Overseas capacity-damaged products (vitamins, methionine, MDI, etc.)

Pressure points include:

• Some large refining and downstream products, and fine chemicals, especially if terminal demand does not recover simultaneously, leaving small and medium enterprises without sufficient cost transfer ability, facing profit squeeze.

Zhang Chaoliang: Since 2026, influenced by U.S. actions against Venezuela and Iran, international oil prices have hit new highs, making cost-driven price increases the main logic rather than demand-driven. Profitability may shift toward upstream resources. Beneficiaries include cost-advantaged coal chemicals. Downstream processing companies like coatings, plastics, and building materials, with weak cost transfer capacity, may face profit pressure or operational difficulties if terminal demand cannot absorb price hikes.

Wang Yu: The near shutdown of shipping through the Strait of Hormuz has driven oil prices up, exerting cost pressures on the chemical industry and causing supply shocks. Limited supply has pushed up prices of key chemicals like naphtha and ethylene. Companies relying on Middle Eastern imports face cost pressures and supply risks, accelerating the reshaping of global chemical capacity.

As oil prices rise, chain reactions occur in chemical products, benefiting some companies:

• Coal chemicals, as their cost advantage persists when oil prices are high, with product prices rising in tandem, improving profitability.
• Companies with resource advantages or stable raw material sources.
• Industry leaders with high concentration, strong product differentiation, and pricing power, capable of passing costs downstream.

Segments under pressure mainly include:

• Companies dependent on Middle Eastern raw materials, facing procurement difficulties and rising costs, leading to reduced or halted production.
• Chemical firms lacking resource endowments and product differentiation, unable to fully transfer cost increases downstream.

Rui Dingkun: The impact of rising energy costs on the chemical industry is structural. For midstream companies relying on crude oil as raw material, poor competitive positioning and slow cost transfer can have negative effects. Conversely, well-positioned segments can neutralize impacts if they have sufficient inventories, temporarily benefiting from inventory gains. Companies producing chemicals via oil substitute routes, such as coal chemical processes and those using ethane or propane as feedstock, tend to benefit as their product prices follow oil prices with relatively smaller cost impacts. Upstream oil and gas exploration and development companies also benefit from rising resource prices. However, attention should be paid to the volatility and sustainability of energy prices.

Positive Factors Are Accumulating

China Fund News: How do you view the overall prosperity of the chemical industry in 2026?

Zhang Chaoliang: Over the past four years, the chemical industry has endured a long “cyclical winter” amid slowing global economic growth, shrinking demand, oversupply, squeezed profits, and stricter environmental policies. By 2026, the industry may be on the cusp of a new cycle, with a gradual upward trend over the next 1–2 years. As fundamentals recover cyclically, profit improvements could boost cash flows and dividend capacity, making some leading chemical companies attractive dividend assets.

Positive factors are continuously accumulating. First, policy measures such as “dual control of energy consumption” and capacity replacement are progressing, with outdated capacity gradually phased out. Second, supply-side improvements include controlling incremental capacity, optimizing existing capacity, reducing domestic capital expenditure, and overseas capacity withdrawal. Third, demand is expected to improve, driven by emerging sectors like new energy (lithium batteries, photovoltaics), semiconductors (photoresists, electronic gases), and high-end manufacturing (aerospace materials). Traditional sectors like textiles and apparel also show inventory replenishment needs, and overseas real estate may benefit from rate cuts, creating new demand.

Wang Yu: The industry is shifting from demand-driven overcapacity to a phase where geopolitical disturbances raise cost centers and reshape global supply, with Chinese leading firms gaining competitiveness. Capital expenditure and construction growth have turned negative, indicating the peak of supply expansion has passed. High-cost capacities in Europe and Japan are exiting, allowing Chinese giants to capture global market share. The industry is gradually emerging from the downturn since 2022. Under policies against “internal competition,” new demand, and the potential acceleration of PPI recovery, the chemical sector is poised for cyclical recovery and even reversal.

Yan Dong: After a four-year downturn, the industry saw a turning point in 2025. Data shows that in January–February 2026, the added value of chemical raw materials and chemical products grew by 7.6% year-on-year, indicating a good start. Most institutions see 2026 as the year of cycle reversal, with fundamentals bottoming out and profits and valuations beginning to recover.

We believe the core drivers of the strategic window include:

1. Deep supply-side cleanup: domestic capital expenditure cycles have largely ended, with construction growth slowing or turning negative; policies against “internal competition” and “dual carbon” are accelerating outdated capacity elimination. Overseas, high-cost capacities in Europe are exiting, freeing global market space for Chinese firms.
2. Industry restructuring and value revaluation: global chemical landscape is reshaping, with Chinese firms leveraging full industry chain support and cost control to increase global market share and pricing power.
3. Demand transformation: traditional demand is gradually recovering with economic rebound, while new growth engines from semiconductors, AI, humanoid robots, and low-altitude economy are driving high-end chemical material demand.

Rui Dingkun: The overall industry outlook for 2026 is optimistic. The previous peak was in 2021; after four years of decline, fixed asset investment growth slowed, some small firms exited, and demand increased, leading to higher capacity utilization and improved profitability. “Dual carbon” and anti-inflation policies will accelerate capacity reduction. Overseas, high electricity and labor costs, along with aging plants, will lead to capacity exits, further reducing supply and improving profits domestically. Currently, China accounts for over 40% of global chemical value, and this share may grow further given its competitive strength.

Focusing on Cost Substitution and Anti-Inflation Strategies

China Fund News: Among various chemical sub-sectors, which main themes do you currently favor?

Wang Yu: First, the cost substitution logic under high oil prices, benefiting upstream resources and coal chemicals. Second, the supply-demand improvement driven by anti-inflation policies, with domestic capex slowdown, overseas capacity exits, and energy efficiency constraints favoring leading companies with pricing power and high industry concentration. Third, agrochemical resources and food security, as phosphates have strategic geopolitical importance, and potash supply-demand remains tight, maintaining high prosperity.

Yan Dong: During the cyclical upturn, focus on leading companies with capacity advantages, benefiting from both price increases and volume growth. In various sub-sectors, prioritize long-term supply-demand improvements and scarce resource chemicals like fluorochemicals, phosphochemicals, and potash. Given ongoing tensions with Iran, domestic producers of methionine, vitamins, MDI, and coal-based olefins are also worth attention.

Zhang Chaoliang: Currently, three main themes are promising:

1. Growth driven by emerging sectors—demand for high-performance chemicals in new energy, semiconductors, and high-end manufacturing is exploding. Examples include electrolytes and separators for lithium batteries, photoresists in semiconductors, and high-end composites for aerospace.
2. Opportunities from supply constraints and industry consolidation—accelerated elimination of outdated capacities in upstream resource and basic chemical sectors under policies promoting “anti-inflation” and energy consumption limits. Leading firms with resource endowments and integrated advantages, such as in fluorochemicals, phosphochemicals, and titanium dioxide, will benefit from price elasticity and market share gains.
3. Recovery of traditional demand—post-pandemic macro stabilization and restocking cycles are boosting demand in textiles, real estate, and related sectors. Downstream products like chemical fibers, soda ash, and MDI are expected to see volume and price increases, with good cyclical resilience.

Rui Dingkun: First, industries with high capacity utilization and stable demand growth are attractive, as limited new capacity can improve profitability and valuation. Second, sectors actively reducing excess capacity through industry cooperation can see profit elasticity. Third, sectors with stable demand, competitive advantages, and high dividend yields are favorable. Fourth, emerging new materials sectors may experience episodic profit surges.

Timing for Strategic Investment

China Fund News: Is now a good time for investors to deploy? What risks should be watched?

Zhang Chaoliang: From supply-demand improvement, the chemical sector has medium-term value. The industry is at the intersection of supply cleanup and demand recovery, but fundamentals take time to transmit, and short-term timing is hard to pinpoint. For most investors, phased or dollar-cost averaging investments may be more effective than market timing.

Risks include:

• Whether demand recovery can absorb existing capacity;
• Significant differentiation among sub-sectors, meaning not all chemicals will reverse;
• Diversify via index funds, focusing on leading companies with cost advantages or technological barriers.

Wang Yu: It’s a stage suitable for gradual deployment, not for full positions ignoring risks. Market perception is shifting from “waiting for validation.” Short-term risks include: geopolitical and energy price volatility, cost pressures squeezing downstream profits, and potential long-term disruptions if the Strait of Hormuz remains blocked, possibly triggering a global recession. Long-term risks involve macro demand shortfalls and weaker-than-expected profit recovery.

Yan Dong: After recent adjustments, we see this as a good strategic entry point. Three reasons:

• The recent surge in oil prices has triggered stagflation expectations, causing broad declines in the sector, with leading stocks down over 20%, now in valuation zones.
• Unlike the 2022 peak, the current cycle is still in early uptrend, with Chinese leading firms’ capacity advantages not yet fully priced in.
• First-quarter 2026 results are expected to be strong, with overseas capacity shutdowns accelerating industry prosperity.

Key risks to monitor include: sustained high oil prices causing stagflation, domestic policies on “internal competition” and “dual carbon” not meeting expectations, and new capacity releases in some sectors.

Rui Dingkun: First, the industry is in a cyclical improvement window. Second, policies like “dual carbon,” anti-inflation, and overseas capacity exits accelerate capacity reduction. Third, valuation levels are below historical medians, offering attraction. Lastly, in the current oil supply tension, China’s chemical industry shows resilience with sufficient inventories and intact supply chains, demonstrating strong domestic manufacturing resilience and global competitiveness. Focus on financially stable, profit-improving, well-governed leading companies.

Main risks include large oil price swings complicating inventory management and safety compliance.