Is the chemical sector picking up? Institutional latest analysis: Optimistic about cyclical opportunities

The chemical sector, which has been experiencing a decline in prosperity for many years, is gradually showing signs of recovery.

Faced with falling prices and increased capital expenditures, the chemical sector entered a long downward cycle starting in 2021. However, since mid-last year, the sector has performed significantly better, with leading companies Wanhua Chemical and Huaxu Hengsheng both seeing substantial stock price increases.

Institutional analysts believe that by 2026, overseas chemical capacity will accelerate its exit, domestic capacity deployment will slow markedly, and inefficient capacity will continue to exit, marking a phase of supply contraction. The chemical industry is at a new starting point of supply-demand rebalancing, with policies against internal competition reshaping the competitive landscape. Additionally, new productive forces represented by AI computing power, advanced semiconductor manufacturing, and humanoid robots are expected to lead a new wave of growth.

Sector Performance Shines

Under the narrative of reducing internal competition, stock prices in the chemical sector are quietly reversing. The Wind Chemical Index rose 30.44% in the second half of last year. After entering 2026, the index continued to rise, with an increase of over 9% this year.

Leading stocks also performed well: Wanhua Chemical increased by 10.8% this year, Huaxu Hengsheng rose by 13.36%, and Xinhecheng gained 16.83%.

Some sub-sectors performed even better. For example, the dispersive dye leaders Zhejiang Longsheng and Runtu Co. increased by 54.13% and 97.99% respectively this year.

Price hikes are a key driver of performance and stock prices. Dispersive dye prices first moved upward in late January 2026, with prices rising by 1,000 yuan/ton to 18,000 yuan/ton on January 22, then again by 1,000 yuan/ton to 19,000 yuan/ton on January 29, achieving consecutive monthly increases. In February, major producers continued to announce price adjustments. Zhejiang Longsheng raised the prices of all dispersive dye varieties by 2,000 yuan/ton starting February 8, with the main product dispersive black ECT 300% recently seeing a cumulative increase of 5,000 yuan/ton.

However, Runtu Co. issued a risk warning after its stock price continued to rise. On February 11, Runtu stated that due to rising prices of reducing agents, the company’s dispersive dye market quotes had been slightly increased several times recently, which is expected to positively impact 2026 performance. Nonetheless, due to the uncertainty of the sustainability of dispersive dye price fluctuations, the extent of the impact on the company’s performance cannot be predicted at this time. Investors are advised to invest rationally and be aware of investment risks.

Institutional Optimism on Cyclical Opportunities

Some institutions believe that by 2026, the entire chemical industry may experience a cyclical upturn, not just certain sub-sectors.

Southwest Securities pointed out that from a global perspective, the chemical industry is at the start of a new boom cycle. Chinese chemical companies have grown stronger over the past few years, establishing a more solid profit base and greater profit elasticity.

On the capacity side, 2022–2025 is a period of capital expenditure expansion for China’s chemical capacity. By 2026, overseas capacity will accelerate its exit, domestic capacity deployment will slow significantly, and inefficient capacity will continue to exit, leading to a supply contraction phase.

On the demand side, in 2025, the U.S. economy demonstrated unexpected resilience, and China also delivered impressive results, with GDP reaching 140 trillion yuan, up 5.0% year-over-year at constant prices. Looking ahead to 2026, the U.S. is expected to enter a rate-cutting cycle with a low risk of recession, while China will prioritize boosting domestic demand as a key economic task, with ample policy tools. The supply-demand situation in the chemical industry is expected to improve beyond expectations.

Huafu Securities believes that the peak of capital expenditure in the chemical industry has passed, with industry fixed asset investments turning negative in the second half of 2025, indicating the gradual end of capacity expansion. As PPI gradually turns positive in the future, the industry’s supply-demand inflection point is approaching.

From a policy perspective, starting July 2024, policy guidance shifted from “stabilizing growth” to “high-quality development,” with preventing vicious internal competition becoming the new normal. Reducing supply and improving quality on the supply side, along with expanding high-quality capacity overseas, are two major paths to breaking internal competition.

“Looking ahead to 2026, we believe profits are likely to bottom out and then rebound. The industry is at a new starting point of supply-demand rebalancing, with policies against internal competition reshaping the competitive landscape, and new productive forces represented by AI computing power, advanced semiconductor manufacturing, and humanoid robots leading a new wave of growth,” Huafu Securities stated.

(Article source: Securities Times)