Chemical industry will rebound slowly in the second quarter

Judging from the indicators of industrial growth, investment, and consumption, China’s economy has experienced an overall decline in the first quarter and has not yet fully stabilized. Both prices and leading indicators indicate that China’s economic growth rate is “breaking 7” in the first quarter. However, according to the official PMI indicators announced in March, the economy has bottomed out. In the first quarter, fiscal, real estate and monetary policies have shown their protection of the economy. It is expected that a sustained favorable policy will be introduced in the second quarter as an economic escort, and the economy will stabilize at the end of the second quarter.

The overall chemical industry will slowly pick up. From the second half of 2013, the growth rate of investment in fixed assets in the chemical industry began to decline. In 2014, the performance was particularly noticeable. It is expected that the serious overcapacity situation in the industry as a whole will be eased this year. However, in the second quarter, the overall industry is still going after the previous round of expansion. The second half of the production phase.

The decline in market interest rates has benefited companies with high leverage. As we expected in the previous period, the central bank cut interest rates again in the first quarter. The decrease in market interest rates will help reduce the financial costs of chemical companies. Especially for companies with high leverage ratios, the benefits of monetary policy entering the interest-reduction cycle will gradually be released.

Oil and gas prices are expected to be low. In the first quarter, oil prices were still low, considering that the US crude oil inventories were high, OPEC’s willingness to increase prices was weak, and the situation in Iran was improving. We expect that there will be less likelihood of a sharp rebound in the second quarter.

The overall valuation of the chemical industry is reasonable and there are opportunities for subdividing the industry. In the first quarter, industry valuations entered an uptrend channel. Based on the overall market valuation level, from the P/E point of view, the industry valuation is reasonable. From the current P/B level, we believe that the chemical industry valuation is still further in the second quarter. There is more room for improvement in the subdivided areas that are partially affected by the overall economic and large industry cyclical impact.