Chemical sub-sectors differentiate significantly

The chemical industry witnessed a 38.74% year-on-year decrease in overall operating profit during the third quarter, while the net profit attributable to shareholders of the parent company fell by 39.31% year-over-year. The growth rate of operating revenue also dipped slightly compared to the interim reporting period. Interestingly, the revenue growth rate of the chemical sector closely mirrored the 5.9% year-on-year increase of the overall A-share market during the same period, yet the profit growth rate lagged significantly behind the broader market. Despite these challenges, there were notable bright spots within the industry. For instance, the year-on-year decline in net profit for the chemical sector was 7.64 percentage points smaller than in the previous reporting period. Furthermore, certain chemical sub-sectors, including pesticides, fluorides, rubbers, viscose, and others, showed positive signs of improvement. This suggests that as the macroeconomic environment stabilizes, the chemical industry's performance is gradually recovering. Even sectors traditionally considered part of the midstream manufacturing industry, often labeled as "sunset industries," are proving to have hidden potential for growth. Statistical data indicates that the third quarter saw significant differentiation among chemical sub-sectors. Of the six secondary sub-sectors under the SWS industry classification, five reported a year-on-year decline in net profit attributable to shareholders of the parent company. Particularly hard-hit were chemical raw materials and chemical fibers, which experienced drops of 106.42% and 110.27%, respectively. Among the 25 tertiary sub-sectors, 18 reported year-on-year declines exceeding 50%. These included fluoride workers, refrigerants, inorganic salts, polyester, soda ash, and other chemical new materials. On the brighter side, the rubber sub-sector demonstrated resilience, posting a 9.08% year-on-year increase in net profit attributable to shareholders of the parent company. Additionally, seven tertiary sub-sectors recorded positive year-on-year growth in net profit. Notably, daily chemical products surged by 191.08%, other rubber products grew by 80.73%, pesticides increased by 75.94%, viscose rose by 33.59%, phosphorus chemicals and phosphates improved by 23.78%, coatings and paints climbed by 7.15%, and compound fertilizers posted a 4.79% gain. What stands out even more is the improvement in profitability within certain sub-sectors. For example, viscose and coatings reversed their declining profit trends in the third quarter. The viscose sub-sector reported a 41.6% year-on-year decline in net profit, while coatings saw a 1.4% drop. Closer examination reveals that the viscose industry’s revenue fell by 34% in the third quarter, meaning that the profit increase stemmed largely from cost reductions. Net profit growth in daily chemical products, pesticides, and other rubber products accelerated in the third quarter. Their growth rates aligned closely with those of major consumer industries like food and beverages, pharmaceuticals, and new consumer electronics. This highlights the strong performance of these chemical sub-sectors despite being part of traditional midstream manufacturing. As early as the third-quarter earnings preview, this newspaper highlighted the potential of traditional midstream manufacturing sectors, such as other rubber products. Companies like Sanlux, Double Arrow Shares, and Treasure Belt Industry stood out due to stable demand and cost reductions, leading to better-than-expected results. Looking back, Baotong’s net profit growth rate was 182.89%, Double Arrow Stock reached 188.42%, and Sanlitun recorded 59.86%. Comparing this year’s third-quarter results to last year’s, the performance of sectors like other rubber products, pesticides, viscose, coatings, paints, inks, phosphorous chemicals, and phosphates has improved dramatically. For example, the year-on-year change in viscose’s net profit shifted from -982.82% last year to positive growth this year. Similarly, daily chemical products saw a smaller net profit decline this year compared to last year’s -382.78%. Compound fertilizers also improved, with a 90.88% year-on-year growth last year. According to Zheng Zhenghua, a researcher at Founder Securities, the chemical sub-sectors with strong performances should continue to monitor changes in raw material costs and demand conditions. If both remain favorable, these sectors are likely to sustain high profitability moving forward.