YICAI | Global Investment Banks, Multinationals Hike Chinese Chemicals Market Exposure
(Yicai) Feb. 13 -- Major international investment institutions, including UBS Securities and Morgan Stanley, have expressed optimism about the Chinese chemicals market, with multinational petrochemical corporations seeing China as an essential market for their development.
UBS Securities upgraded its outlook for China's chemicals industry in its latest research report, believing that it will enter a new upward cycle from this year to 2028, thanks to multiple positive factors, with profits recovering and corporate valuations increasing.
Meanwhile, Morgan Stanley expects a 'long tail recovery' rather than a sharp rebound, despite agreeing on similar fundamental shifts as UBS Securities.
Bulk chemicals are at a dual inflection point in capacity and inventory cycles, and they are expected to experience an upward trend because domestic and overseas demand will likely recover this year, according to Huatai Securities.
Capital expenditure in the chemicals industry has declined since 2024, and with the anti-involution wave and accelerated elimination of outdated overseas capacity, the supply side is expected to contract, China Galaxy Securities predicted. The draft of the 15th Five-Year Plan has set the tone for the next five years with its emphasis on expanding domestic demand and establishing a dual bottom for supply and demand.
China's seven major coastal petrochemical bases are gradually gaining global pricing power for certain products, leveraging their advantages in integration, scale, low energy consumption, and technological iteration, and transforming capacity advantages into export competitiveness, thus impacting aging capacity in Europe, Japan, and South Korea, according to analysts.
Anti-involution efforts may prompt a revaluation of China's chemicals industry, with related measures expected to significantly slow capacity expansion at the global level, Guohai Securities said in a recent research report. China's chemicals industry has abundant net operating cash flow, and once expansion slows, potential dividend yields will increase substantially, it added.
Multinational Commitment
Global chemicals giant have expressed their commitment to the Chinese market, increasing their local investment and reiterating the importance of China in their international development strategies.
For example, representatives from BASF told Yicai that the German company's Verbund site in Zhanjiang, China's southern Guangdong province, recently kicked off operations. With a total investment of EUR10 billion (USD11.9 billion), the site has put into operation three butyl acrylate units with an annual production capacity of 400,000 metric tons, an ethylene cracker with an annual output capacity of one million metric tons, and a polyethylene unit with a capacity of 500,000 metric tons per year.
The new capacity will enhance BASF's supply capabilities, providing stable products for adhesive, coating, and specialty solution applications.
Cellasto, a noise, vibration, and harshness reduction components manufacturer under BASF, announced in April last year that it would invest around EUR60 million (USD71.2 million) to build a second factory in Shanghai to expand its production capacity by almost 70 percent, aiming to capitalize on China's rapidly growing electric vehicle market. Operations are expected to start next year.
"If you want to be a growth company in chemicals, you have to grow in China," BASF's Chief Executive Officer Markus Kamieth told several media outlets in a discussion in Berlin last November, Barron's reported. "China is by far the biggest market for chemicals and the strongest manufacturing country in the world, so if China grows, the market grows."
Wacker Chemie, another German chemicals giant, has designated China as its second-largest business base globally. Meanwhile, Covestro, Evonik Industries, and Solvay are all expanding their specialty chemicals production capacity in the country, targeting high-end applications.
These are not impulsive decisions, as multinationals employ rigorous due diligence, evaluating market risks, competitive dynamics, and return expectations, according to analysts. Their sustained investments suggest that they have identified opportunities, such as demand growth, supply chain integration, and access to emerging industrial applications.
Chinese Chemicals Industry's Structural Shifts
Investment banks and analysis institutes have identified three fundamental changes reshaping the Chinese chemicals industry.
The first is that global capacity rationalization is accelerating. Exxon Mobil said last month that it will close its ethylene cracker factory with an annual production capacity of 800,000 tons in Scotland, while Japan's Idemitsu Kosan and Mitsui Chemicals announced in December that they are decommissioning their ethylene facility with a 370,000-ton capacity in Chiba.
China is also phasing out more than 12 million tons of chemicals production capacities, but that is a decision guided by policy-guided adjustments through tightened approvals, differentiated electricity pricing, and adjusted export tax rebates, rather than crisis-driven closures elsewhere.
The second change is a transformation in the demand structure. Specialized and customized materials for the new energy, electronics, and advanced equipment sectors are becoming the Chinese chemicals industry's clear growth drivers.
In new energy, demand is surging for solid-state battery electrolytes, hydrogen fuel cell materials, and polyolefin elastomer films for photovoltaics. In electronics, the substitution for photoresists, chemical mechanical polishing slurries, and ultra-high-purity reagents is accelerating.
Other emerging sectors, such as the low-altitude economy and humanoid robots, are opening entirely new application scenarios for specialty engineering plastics, high-performance fibers, and lightweight composite materials.
The third change is a sharp rise in research intensity. Wanhua Chemical Group invests an average of CNY4 billion (USD579.1 million) a year, accounting for over 4 percent of its annual revenue, which is comparable to overseas majors, such as BASF and Dow.
Twenty-five Chinese chemicals firms entered the European Union Commission's 2025 Industrial Research and Development Investment Scoreboard, ranking in the world's top 2,000 by corporate R&D spending.
The EU Carbon Border Adjustment Mechanism, which took effect Jan. 1, adds another dimension. It imposes carbon costs of 8 percent to 18 percent on chemical imports, based on production emissions.
Traditional high-energy, high-emission products in traditional industries may see their competitiveness weaken in the EU with the introduction of the Carbon Border Adjustment Mechanism, Wang Xiaohong, researcher at the China Center for International Economic Exchanges, told International Business Daily.
In the medium term, the Carbon Border Adjustment Mechanism will accelerate the retirement of high-emission capacity, and in the long term, it will grant companies achieving carbon efficiency breakthroughs competitive advantages, as the industry transitions from a competition based on prices to one combining carbon efficiency and research intensity, Wang noted.