Under the new economy, the chemical industry has a broad space and significant advantages

1. The chemical industry has a broad space and significant advantages, and has great potential in the new economy

1.1. Chemical industry introduction

Chemical industry is the pillar industry of modern civilization. Behind the demand for food, clothing, housing, transportation and other aspects are inseparable from a variety of chemical raw materials, chemical products, plastics, rubber, chemical fibers and other chemical industry products. The industrial chain of the chemical industry consists of raw materials - chemicals - terminal consumption. The chemical industry occupies an important position in China's industry. In all industrial industries, the main business income of the chemical industry accounts for about 9-11%, and the total profit accounts for about 8-10%, ranking first in all industrial industries. Among them, after experiencing the disturbance of the new coronavirus epidemic in 2020, with the rapid resumption of work and production in China, the income and profit of the main business in 2021 increased significantly.

1.2. The chemical industry has a broad prospect with both fluctuations and opportunities

In the long run, the chemical industry belongs to a very wide range of application fields of the industry, the continuous growth of GDP for China's chemical industry space has laid a good development environment and the basis for continuous expansion. From the demand side, China's total retail sales of social consumer goods continue to grow, China's current consumption scale is now close to the United States, the downstream consumer market has brought huge demand, laying a solid foundation for the development of the chemical industry.

With the development and progress of The Times, the development of human society from the Stone Age - Bronze Age - iron Age - iron Age - silicon age - carbon age, the chemical industry is the basis and premise to support various industrial technological innovation. In the "carbon era", the emerging high-end equipment manufacturing industry, the new generation of information technology industry and the new energy industry all contain the huge demand potential for chemical materials. Countries around the world have also taken the development of various types of new materials as an important part of international strategic competition. At present, Chinese enterprises occupy a large market share in relatively low-end industrial applications such as rare earth functional materials and glass fiber materials.

China has two main advantages in the chemical industry: the first is the talent advantage. With the economic development and transformation, the demographic dividend has gradually given way to the talent dividend. In the past 20 years, the number of graduates and the enrollment of master and doctoral students in China's ordinary colleges and universities has steadily increased, and by 2021, more than 8 million graduate students have been trained. China's total scientific and technological human resources maintain the world's first, the future is expected to continue to enjoy the talent dividend.

The second is the technological advantage, the current domestic chemical enterprises are in the "introduction, absorption" to "invention, creation" gradually changed time node. The chemical industry relies on independent research and development to break through technical barriers, constantly improve process technology, and finally play a manufacturing and cost advantage to occupy market share. China's R & D accounted for a steady increase in GDP, with the rapid growth of GDP, China's scientific research spending has been the world's second only to the United States, which provides a solid foundation for the chemical industry to stabilize and long-term guarantee.

The chemical industry is a typical cyclical industry, and the investment in the chemical industry should grasp the opportunities brought by fluctuations. When the prosperity of the chemical industry is up, the price of products is up, and the profit is increased, which often brings the increase of the profit level and the enterprise valuation. On the contrary, the downward prosperity of the chemical industry, the downward price of products, and the decline of profits often lead to the decline of profit level and enterprise valuation, and the P/E ratio and valuation level show highly cyclical characteristics. Benefiting from supply-side reform and demand, the chemical industry has entered a new upward cycle since 2016. With the fall in demand and capacity expansion, the chemical industry entered a downward cycle in the second half of 2018. With the improvement of the epidemic situation and the rapid resumption of production and work in China, although there are still large disturbances, the chemical industry prosperity index is still gradually rising on the whole. At present, the chemical industry price-earnings ratio is generally low, and the opening of a new cycle may bring potential investment opportunities.

1.3. "Dual carbon" strategy and new energy support, the chemical industry or welcome comprehensive value revaluation

In recent years, due to the tightening of environmental protection policies, the chemical industry has accelerated the elimination of backward production capacity, and the industry concentration has been continuously improved. In addition, affected by the epidemic, the risk tolerance of the head enterprise is stronger, the Matthew effect is obvious, and the chemical industry will usher in a pattern of strong and constant strength. As one of the typical energy-consuming industries, the chemical industry has ushered in a new round of supply-side reform of the total control version under the guidance of the national "dual carbon" strategy. In the future, the market of the chemical industry will closely revolve around the three keywords of "carbon neutrality", "new energy" and "revaluation".

1.3.1. The direction of carbon reduction is gradually clear, and the industry pattern is continuously optimized

Under the background of dual-carbon strategy, the middle and upstream chemical industry will usher in historic changes. First of all, the rapid development of the new energy industry will significantly stimulate the demand for chemical resources and raw materials in the upper and middle reaches. Secondly, under the "dual carbon" strategy, due to the requirements of resource protection and energy consumption control, the supply of some chemical materials will be constrained, and with the continuous optimization of production capacity clearance and industry pattern, the relevant chemical subsectors will usher in a historic golden development period.

On February 11, 2022, the National Development and Reform Commission and other four ministries and commissions issued the "Guidelines for the Implementation of Energy Saving and Carbon Reduction Transformation and Upgrading in Key Areas of Energy-Consuming Industries (2022 version)", which proposed specific energy saving and carbon reduction plans for high-energy-consuming industries such as oil refining and coal chemical industry, and determined the benchmark emission level and benchmark level of the industry. Specific targets have been set for the proportion of production capacity above the industry benchmark and benchmark level. The improvement of energy efficiency level and the reduction of carbon emission intensity in subsequent key areas will become an important assessment indicator for its green and low-carbon transformation development.

Among them, in addition to ammonium phosphate in 2025 to allow 30% of the production capacity below the benchmark, the rest of the categories are required to achieve a partial zero below the benchmark in 2025. For the part that is better than the benchmark, most types must reach more than 30%. Among them, calcium carbide and coke required the largest increase, reaching 27% and 28% respectively.

The difference between the "double carbon" strategy and the previous supply-side reform is that the supply-side reform often adopts a one-size-ze-all "shock therapy" to quickly eliminate inefficient production capacity, while the "double carbon" strategy achieves market clearing through carbon trading and other ways, which will make the elimination cycle of inefficient production capacity longer, and on the other hand, the difficulty of new supply in the high-energy chemical industry significantly increases. From the perspective of production capacity, the production capacity of major chemical products has remained flat or increased in the past. The number of enterprises above designated size has been in a downward trend since 2015, and only increased in 2021. In the process of maintaining a steady rise in total production capacity, the rise in marginal cost will eliminate relatively weak players in the field, while the existing white horse leader will maintain a competitive advantage, the Matthew effect is obvious, and the industry concentration is expected to continue to increase.

1.3.2. New energy brings new opportunities, and the demand for various chemical materials is strong

With the continuous elimination of high energy consumption industries, green and efficient new production capacity ushered in a historical opportunity for accelerated development, hydrogen energy, photovoltaic, energy storage and other fields have achieved considerable development, driven by the strong demand for new energy, the related chemical upstream raw material industry also ushered in a historical opportunity for development.

There are roughly two main lines of material demand for new energy:

(1) In the photovoltaic industry chain: polysilicon upstream trichlorosilane, photovoltaic film upstream EVA.

(2) Lithium industry chain: lithium battery upstream lithium solvent DMC, positive electrode material upstream lithium iron phosphate.

Ethylene vinyl acetate copolymer (EVA) is an advanced polymer material industry - high performance resin - high performance polyolefin plastic, with high transparency, high adhesion, resistance to environmental pressure characteristics. EVA resin is an important upstream of photovoltaic products such as photovoltaic film and coating. With the continuous development of China's photovoltaic industry in the future, the demand for high-end EVA resin products will further increase.

At present, China's EVA import quantity is highly dependent, but the domestic substitution rate has an upward trend in the past two years. From the demand side, photovoltaic demand in 2020 and 2021 will rise rapidly, accounting for the proportion of total demand continues to rise, with the development of the new energy industry, photovoltaic will become the main demand side of EVA, and the current domestic capacity to ensure stable large-scale production to meet the demand, it may still take 1-2 years, during which there is expected to be a large demand gap.

Trichlorosilane is the intermediate material for the manufacture of polysilicon and silane coupling agent, of which polysilicon is the main material of solar panels. Trichlorosilane can be divided into ordinary grade, photovoltaic grade and electronic grade, at present, China's electronic grade trichlorosilane relies heavily on imports, photovoltaic grade trichlorosilane production capacity is limited, ordinary grade trichlorosilane production capacity is sufficient. China's common grade trichlorosilane is currently mainly serving silane coupling agent industry, with the rise of new energy industry, photovoltaic grade polysilicon demand is rising rapidly. At present, China's polysilicon imports are still huge, but the overall decline in the past five years, domestic substitution has become a new development trend. At the same time, the price of photovoltaic grade polysilicon has continued to rise since 2020, which will promote the expansion of domestic enterprises' production capacity and technological update.