Chemical industry's Year of the Horse "Good Start," valuation recovery ends, and the price hike realization period begins!

February 24th, the first trading day of the Year of the Horse, the A-share chemical sector continued to rise throughout the day, with strong performances in subdivisions such as phosphate chemicals and pesticides. Multiple stocks hit the daily limit-up, including Six Countries Chemical, Yuntu Shares, Yuntianhua, and Hubei Yihua, which all surged to the limit in the afternoon. U.S. Brands, Chitianhua, and Jinjingda previously hit the limit, while Silt, Xinyangfeng, and Yangnong Chemical saw significant gains.

According to the latest report from Guotou Securities, the chemical industry has stood at the threshold of a reversal after experiencing a four-year downward cycle. Multiple indicators show that the industry has basically bottomed out, and 2026 is expected to be a turning point in the cycle.

In terms of prices, the China Chemical Product Price Index (CCPI) closed at 3,930 points on December 31, 2025, down 39% from the peak in 2021, placing it in the 23rd percentile over the past five years, entering a historical low range. On the profit side, the basic chemical sector achieved a net profit attributable to parent company of 112.7 billion yuan in the first three quarters of 2025, a year-on-year increase of 7.5%, indicating initial stabilization of the sector.

More critically, industry capital expenditure decreased by 18.3% year-on-year, with negative growth continuing for seven consecutive quarters since Q4 2023. Using the two indicators of ongoing projects/fixed assets and capital expenditure/revenue, the phase of supply expansion has ended, and the capacity cycle is turning.

Based on this, the report predicts that after the holiday, the market will shift from the valuation repair stage of “weak reality, strong expectations” to a verification period of whether price increases can be sustained. In the short term, focus will be on the dye industry chain and TMP (trimethylolpropane). The approaching “Golden March and Silver April” peak season provides a window for low inventory varieties of synthetic fibers and phosphate chemicals to expand.

Dyes: First round of price increase confirmed, intermediate products may rise beyond expectations

The dye sector is currently one of the most fully realized segments of the chemical price increase logic. According to Baichuan Yingfu data, as of February 22, disperse dye prices were 21,000 yuan/ton, up 23.53% year-to-date; reactive dye prices were 23,000 yuan/ton, up 4.55% this year.

Guotou Securities pointed out that the core driver of this round of dye price increases stems from the irreversible concentration in intermediate products. The price of reducing agents for disperse dye intermediates has risen to 70,000 yuan/ton, up 45,000 yuan/ton from lows earlier; H-acid, an intermediate for reactive dyes, has also experienced supply contraction due to force majeure events in 2025, with potential for further price increases.

The team compares dye intermediates with citronellal in the VA industry chain, noting that both share complex synthesis processes, highly concentrated capacity under oligopoly, and a high proportion of intermediate costs downstream, while dyes account for a very small share of end-product clothing costs. This makes price increases more feasible. Currently, prices for other intermediates like m-phenylenediamine, m-aminophenol, hexachloride, and hexabromide have not yet started to rise, leading leading companies to potentially continue raising prices through intermediate product cycles, with upside elasticity possibly exceeding expectations.

TMP: Supply-demand mismatch and cost resonance, with potential for unexpected boom

TMP (trimethylolpropane) has become one of the most impressive performers in the chemical sector. According to Baichuan Yingfu data, as of February 22, TMP was priced at 12,000 yuan/ton, up 43.71% year-to-date.

Guotou Securities believes that this TMP rally is driven by a dual resonance of supply-demand mismatch and cost factors. On the supply side, sudden production cuts in Ningxia combined with maintenance in Hebei have created a short-term supply gap; long-term, Wanhua Chemical’s 50,000-ton/year TMP capacity will be converted to a new neopentyl glycol plant, and overseas capacity faces ongoing competitiveness issues due to high energy and labor costs, suggesting a continued supply contraction trend.

On the demand side, TMP is a core raw material for UV-curable coatings, new energy materials, and pharmaceutical intermediates. Demand continues to be released amid the recovery of PVC exports and industry upgrades in new energy. On the cost side, the price of n-butyraldehyde has increased by 7.69% this year, while the by-product calcium formate price has fallen, further compressing production margins and strengthening manufacturers’ willingness to maintain prices.

The report suggests that TMP is currently in a phase of dual resonance driven by supply-demand mismatch and cost support, and industry prosperity is expected to shift from short-term price pulses to a medium- and long-term profit center upward trend.

Chemical fibers: “Golden March and Silver April” peak season approaches, low inventory varieties expected to be elastic

The report notes that “Golden March and Silver April” is the traditional peak season for chemical fibers, and post-holiday resumption of work and stocking will open up price flexibility for low-inventory varieties.

Polyester filament: orderly reduction of production capacity is underway, low inventory prepares for Q2 peak. Major factories have implemented new rounds of reduction since late December 2025, with an estimated 15% reduction across three major filament producers. Industry utilization during the Spring Festival may have fallen to 71-72%, the lowest in nearly three years (excluding pandemic years). As of February 12, POY inventory among mainstream varieties was only 11.7 days, at a historically low level.

Viscose staple fiber: high operating rates + low inventory, with upward price potential. Industry operating rate as of February 13 reached 88.45%, a high level historically, while factory inventory dropped to 94,500 tons, near a one-year low. No new capacity is expected in 2026; substitution demand driven by rising cotton prices and new spinning equipment upgrades may further boost demand, maintaining a tight supply-demand balance.

Polyester bottle chip: industry utilization further declines, profit recovery expected. “Anti-involution” supply-side measures continue, with utilization rate dropping from 76.05% at the start of the year to 70.89%. Current average profit is about 14.02 yuan/ton, up 115.15 yuan/ton from last month, turning profitable. According to Baichuan Yingfu, as of February 14, 2025, about 5.22 million tons of capacity are in or near shutdown or reorganization, accounting for approximately 24.1% of total capacity.

Phosphate chemicals: strategic importance rising, new energy demand boosts supply-demand outlook

The phosphate chemical sector has recently received additional geopolitical catalysts. According to World Agrochemical News, on February 18, Trump signed an executive order invoking the Defense Production Act, listing elemental phosphorus and glyphosate-based herbicides as critical defense materials, explicitly elevating phosphorus’s strategic status in U.S. policy. Guotou Securities believes this implies a reassessment of phosphate ore value with increased geopolitical attributes, and China, as the most complete global phosphate chemical industry chain, is expected to further strengthen its international competitiveness.

Industrial Ammonium Phosphate (IAP): The rapid expansion cycle from 2021-2025, with total capacity rising from 2.29 million tons to 4.84 million tons, has largely concluded. Only three new units totaling 380,000 tons are expected before 2028. On the demand side, ammonium phosphate capacity is projected to increase by 75,000 tons in 2026 and 73,000 tons in 2027, making IAP a key strategic raw material with strong resource attributes and high prosperity potential.

Phosphoric acid: According to Argus data, by the second half of 2026, the supply-demand balance for phosphoric acid will show a significant deficit of several ten-thousand tons, likely maintaining a strong market in the first half of 2026. Based on SMM New Energy, global power battery production in 2025 is about 1,421 GWh, up 36%; according to ICC Xinluo, energy storage battery shipments will reach 640 GWh, up 82.9%, and may reach 1,090 GWh in 2026, further boosting phosphoric acid demand.

Yellow phosphorus: Under strict policy controls, new capacity is tightly constrained. Recently, sulfur prices have surged (up 113.92% to 4,150 yuan/ton as of February 22), possibly activating short-term substitution demand for thermal phosphoric acid, thereby increasing yellow phosphorus demand.

Rebound or reversal, demand is the ultimate test

From a macro perspective, the underlying logic of the current chemical market has shown positive changes. Prices have fallen back to historical lows, profits are stabilizing and rising, and capital expenditure has declined for seven consecutive quarters, indicating that the supply expansion phase has basically ended.

Meanwhile, European chemical capacity is accelerating its contraction. Chinese companies, leveraging scale and cost advantages, are gaining global market share. Among 86 key chemical products monitored, 60% of exports in 2025 are at their highest levels in six years.

However, the real uncertainty remains on the demand side. The downstream of chemical products covers broad sectors such as construction, automotive, home appliances, and textiles. Currently, aside from new energy sectors, overall demand has not shown widespread strong recovery. If raw material prices cannot be smoothly passed downstream, midstream manufacturing profits will be under pressure. The resumption of downstream work and inventory replenishment after the Spring Festival will be critical windows to observe whether the market can deepen from a “rebound” to a “reversal.”

Risk warning and disclaimer

Market risks exist; investment should be cautious. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Investment is at your own risk.