Price Hike Wave! Is a New Cycle Coming for the Chemical Industry?

Recently, the geopolitical conflict between Iran and the U.S. has escalated, with Iran announcing restrictions on ships passing through the Strait of Hormuz. This event has directly impacted the global chemical supply chain, leading to a surge in chemical prices, and the chemical sector has gradually become a new market focus.

Xiaoxia found that the chemical sector has experienced a four-year downward cycle since 2021, only beginning to show significant improvement last year. So many friends are asking: Is this short-term price increase caused by the Strait of Hormuz issue, or is the chemical industry really entering a new cycle? Today, Xiaoxia will discuss this in detail.

First, everyone needs to understand how important the chemical industry really is. It is like the “grain” and “blood” of modern industry—whether it’s coal chemical, petrochemical, or the plastics and fibers we use daily, it is indispensable, making it a pillar industry of the national economy.

The recent restrictions by Iran on the Strait have a huge impact, not only cutting off about 20% of global oil and liquefied natural gas trade routes but also pushing up chemical prices from both cost and market sentiment perspectives.

On one hand, the disruption of Middle Eastern crude oil transportation has widened the gap in domestic crude oil imports. Although China has promoted diversified crude oil imports in recent years, with Russia now the largest source, the position of Middle Eastern crude oil in certain refining processes remains irreplaceable. This puts some companies relying on Middle Eastern heavy and medium crude under certain supply pressures.

On the other hand, the Middle East is not only a major oil producer but also a main supplier of raw materials for China’s chemical industry: about 60% of methanol, 56% of sulfur, 66% of ethylene glycol, and nearly 30% of ethylene are imported from the Middle East. These raw materials are the core foundation for industries like urea, plastics, fibers, and coatings. Any supply disruptions or price hikes could affect the entire downstream industry chain.

Industry estimates suggest that, due to the dual impact of rising oil prices and direct supply cuts, expectations of supply contraction are increasing. The prices of chemical raw materials dependent on imports from Iran and other Middle Eastern countries could rise by 20%-30% or even higher. (Xingyuan Chemical Park Research Institute, 20260302)

Beyond the short-term geopolitical impacts, the chemical industry is also quietly changing on the supply and demand sides in the long term.

Looking at demand first, the current situation can be described as a “dual-driven” scenario. On one hand, as macroeconomic stabilization continues, demand for traditional chemicals related to infrastructure and real estate is steadily recovering. On the other hand, demand from emerging industries is accelerating, becoming a key engine for chemical growth. For example, explosive growth in lithium batteries, photovoltaics, and energy storage is driving up demand for upstream materials like lithium iron phosphate, EVA films, and soda ash; emerging industries like humanoid robots and satellites are opening new application scenarios for various composite materials.

Contrasting sharply with the strong demand is the positive change on the supply side. In recent years, under policies aimed at reducing internal competition, the chemical industry has undergone active cyclical adjustments and structural improvements. Domestic chemical capacity deployment has slowed significantly, with inefficient capacity continuously exiting the market, leading to an optimized overall supply structure. Meanwhile, increasingly strict environmental standards and project approval processes are constraining supply, which benefits market share concentration among leading companies with technological, scale, and environmental advantages.

Additionally, globally, some high-cost chemical capacities in Europe, Japan, and South Korea are gradually exiting due to energy costs and other factors. This provides Chinese chemical companies with greater development space and opportunities for reevaluating the global market.

After years of development, China’s chemical industry has significantly improved its global position. Data shows that China’s share of the global chemical market has risen from 13% in 2004 to 47% in 2024, becoming an influential force in the global chemical industry cycle. Meanwhile, domestic companies’ new facilities and advanced, environmentally friendly technologies continue to improve, further strengthening cost advantages, supporting industry profit growth in the new cycle. (Southwest Securities, 20250710)

Recently, with the rise of “HALO trading,” investors have shifted their focus to assets with low AI substitution risk, resilience to technological shocks, and long-term stability. The petrochemical and chemical sectors, with high proportions of fixed and tangible assets, have relatively stable profits and cash flows, exhibiting clear HALO attributes, attracting market attention.

Since the beginning of the year, A-shares related to HALO sectors have performed well, with petrochemicals and basic chemicals continuing to strengthen. Based on the performance of the chemical industry, if you are optimistic about this sector, you might consider Xiaoxia’s Petrochemical ETF (159731). This fund closely tracks the CSI Petrochemical Industry Index. According to Shenwan’s first-level industry classification, basic chemicals account for about 61%, and petrochemicals about 32%, helping investors easily share in the profit recovery of downstream chemical products.

Risk Reminder:

Fee structure: Investors trade the above ETFs on the stock exchange just like stocks. The main costs are brokerage transaction fees and fund operation expenses, including management fees of 0.5% per year and custody fees of 0.1% per year, deducted from fund assets. These ETFs do not charge subscription, redemption, or sales service fees. Subscription and redemption agents may charge commissions up to 0.5%, including fees from stock exchanges, registration, and settlement institutions.

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