CITIC Securities: A new round of chemical sector allocation is approaching

China Securities Construction Investment believes that the market has not yet fully priced in the central upward movement of oil prices, and recommends investors set their strategies based on an upward trend in oil prices to prevent potential liquidity risks and to position in certainty assets first. From a medium-term perspective, China’s chemical industry’s relative competitive advantage globally is strengthening, and the market risk appetite driven by inflationary pressures is also more favorable for profitable HALO assets. After the oil price shock, look for core chemical assets with smooth transmission and strengthened relative competitive advantages.

A new round of chemical sector allocation is approaching. Previously, when the market was unsure about oil prices, it chose not to bet, and after struggling to track oil prices, it simply considered the trend over—regardless of whether it was truly over. There was also a surge in risk appetite before Trump’s visit to China. However, after some time, the strait remains closed, more oil wells are forced to shut down, and the longer the shutdown lasts, the harder it is to restart production, with more serious real-world issues. As low-cost crude oil and downstream inventories are digested, upstream costs push prices higher, downstream demand supports procurement, and overseas strong export demand adds to the fundamentals, which are expected to drive chemical stocks forward. The market will soon break the previous impression that “chemical prices above $80 cannot transmit,” and ultimately, it all comes back to supply and demand itself. A new round of chemical sector allocation is approaching.