Chemical sub-sectors differentiate significantly

The operating profit for the chemical sector during the third quarter saw a year-on-year decline of 38.74%, while the net profit attributable to the parent company's shareholders dropped by 39.31% year-on-year. Additionally, the growth rate of operating income slightly dipped compared to the interim reporting period. Interestingly, the revenue growth rate of the chemical industry closely mirrored the 5.9% year-on-year increase of the overall A-share market, yet the profit growth rate lagged far behind the performance of the entire A-share market. However, there is a silver lining: the year-on-year decline in net profit for the chemical industry narrowed by 7.64 percentage points compared to the previous reporting period. Furthermore, certain chemical sub-sectors such as pesticides, viscose, rubber, and others demonstrated notable improvements. This suggests that as the macroeconomic environment stabilizes, the chemical industry's performance is gradually improving. Some traditional midstream manufacturing sectors, often viewed as "lagging," are proving to be more resilient than expected. According to statistical data, the chemical industry sub-sectors exhibited significant differentiation in the third quarter. Only a small fraction of these sub-sectors showed profit growth. Using the SWS industry classification standards, six secondary sub-sectors, including chemical raw materials and chemical fibers, witnessed a year-on-year decrease in net profit. Specifically, the net profit attributable to the parent company in chemical raw materials plummeted by 106.42%, and chemical fibers dropped by 110.27%. Among the 25 tertiary sub-sectors, 18 experienced year-on-year profit declines exceeding 50%. These included fluoride workers, refrigerants, inorganic salts, polyester, soda ash, other chemical new materials, vinylon fibers, chlor-alkali, and spandex. Conversely, within the secondary chemical industry, the rubber sub-sector reported a positive year-on-year growth in net profit, increasing by 9.08%. Additionally, seven tertiary sub-sectors also achieved positive year-on-year increases in net profit. Notably, daily chemical products posted a remarkable year-on-year growth of 191.08%, other rubber products rose by 80.73%, pesticides increased by 75.94%, viscose grew by 33.59%, phosphorus chemicals and phosphates by 23.78%, coatings and inks by 7.15%, and compound fertilizers by 4.79%. This indicates that some traditional midstream manufacturing sub-sectors in the chemical industry deserve attention for their profitability. For instance, the year-on-year growth in net profit for domestic chemicals and other rubber products rivals that of major consumer industries like food and beverages or pharmaceuticals, as well as emerging consumer electronics. A particularly noteworthy development is the turnaround in profitability for some sub-sectors. Viscose and coatings, for example, reversed declining profit trends in the third quarter. Viscose reported a 41.6% year-on-year drop in net profit, while coatings dropped by 1.4% year-on-year. Closer analysis reveals that the viscose industry saw a 34% drop in revenue for the quarter, suggesting that the profit increase stemmed from reduced costs. The net profit growth for household chemicals, pesticides, and other rubber products accelerated in the third quarter. Their growth rates were comparable to those reported in the China Daily, reflecting sustained demand and improved unit profitability. For instance, other rubber products saw a 2.7% growth rate but achieved an 80.7% net profit growth, indicating stable demand but significant cost reductions driving profit expansion. As early as the release of the third-quarter advance notices, this newspaper highlighted in mid-October the potential of "dark horses" in traditional midstream manufacturing. Companies like Sanlux, Double Arrow Shares, and Treasure Belt Industries, which benefited from cost reductions and stable demand, were noted for outperforming market expectations. Reflecting on these predictions, Baotong's net profit growth rate was 182.89%, Double Arrow's was 188.42%, and Sanlitun's was 59.86%. In fact, comparing this year’s third-quarter performance to last year’s, it becomes evident that several sub-sectors, including other rubber products, pesticides, viscose, coatings, inks, phosphorus chemicals, and phosphates, have shown stronger growth. Last year, viscose’s year-on-year change was -982.82%, and daily chemical products had a 382.78% drop in net profit. Compound fertilizers reported a 90.88% net profit growth last year. Therefore, Zheng Zhenghua, a researcher at Founder Securities, emphasizes that continued monitoring of raw material costs and demand conditions is essential for sub-sectors with strong performance. If both factors remain favorable, these sectors could sustain impressive growth in the future.