[Basic Chemicals] The chemical industry may be entering a 'five-year big cycle' — what does this mean for companies and the market?

[Basic Chemicals] The chemical industry may be entering a 'five-year big cycle' — what does this mean for companies and the market?

2. Heavy-asset nature means inherently strong cycles and lagging supply. Chemical projects involve huge investment, and construction typically takes 2–3 years. When demand picks up, new capacity can't come online right away, so prices rise fast; when demand falls, built capacity is hard to shut down and exit quickly, so prices stay under pressure. This supply rigidity is what makes the chemical industry so strongly cyclical.

3. Resource endowment determines a company's long-term survival. Upstream raw materials (oil, coal, phosphate rock, potash, etc.) differ by natural resource. Companies sitting on low-cost resources are on the left side of the cost curve. They weather downturns better and have the biggest profit elasticity in upcycles — resource barriers are the deepest moat in chemicals.

Second, a full breakdown of the value chain: how value flows through upstream, midstream, and downstream. The complete chemical chain runs resources → basic feedstock → chemical products → end applications, with value amplifying at each step.

Upstream | Resource extraction and basic feedstock. Energy resources: oil, natural gas, coal. Mineral resources: phosphate rock, potash, titanium ore, sulfur, fluorite. Core logic: supply rigidity + resource barriers. Upstream is the source of the chain and usually starts raising prices first when the cycle turns — the earliest beneficiary of an upcycle.

Midstream | Basic chemicals (the value-creation hub). Refining integration, coal-to-olefins, soda ash, chlor-alkali, titanium dioxide, MDI/TDI, silicones, refrigerants, and other bulk chemicals. Core logic: economies of scale + technology iteration. Competition is fiercest here and the landscape keeps diverging; product price elasticity is high, making it the main battleground of cyclical rallies.

Downstream | Fine chemicals + end applications. Fine chemicals: electronic chemicals, pharmaceutical intermediates, pesticides, specialty additives. Downstream demand: chemical fiber and textiles, automotive rubber and plastics, architectural coatings, new energy materials, semiconductors, agricultural fertilizer. Core logic: demand-driven + import substitution. Downstream carries the growth from emerging industries, and new materials and high-end fine chemicals have stronger growth characteristics.

The order in which cyclical price hikes pass through: upstream resources → midstream intermediate feedstock → downstream end chemicals. In this upcycle, the price transmission chain is gradually playing out.

Third, cycle positioning: chemicals are already at the start of a new upcycle. Based on research from multiple institutions, the chemical sector is seeing a double-bottom resonance of the capacity cycle and the inventory cycle, plus policy support, and a new upcycle has officially begun.

1. Capacity cycle: industry expansion is near its end and the supply inflection point is confirmed. The downturn that began in the second half of 2022 lasted until the end of 2025 — nearly three and a half years, the longest downturn on record. Industry capex is turning negative: fixed investment in petrochemicals and chemicals fell sharply in 2024–2025; in Q1 2026, basic chemicals capex was down 12.2% year on year. The 'construction in progress / fixed assets' ratio has fallen back below 20%, close to a historic low; willingness to expand is extremely weak. Capacity coming online in 2026 is basically all from stock projects approved before 2025, so new supply pressure is limited.

2. Inventory cycle: destocking has been thorough, and a restocking rally is building.