Surging 51-fold! BASF and Dow Chemical’s Q2 financial results stage a dramatic turnaround—among global chemical companies pursuing ‘slimming down and upgrading,’ who stands out as the top performer?

(II) BASF Group: Steady growth in core businesses + one-time gains from asset divestitures BASF’s Q2 2026 sales totaled €17.2 billion, an increase of €2.4 billion (+16.4% year-on-year). Price increases contributed +11.5%, volume growth contributed +7.3%, while exchange rates exerted only a minor negative drag on the preliminary business report. EBITDA excluding special items amounted to €2.4 billion, up €854 million year-on-year; profitability improved significantly across its Materials, Chemicals, and Industrial Solutions segments. The extraordinary leap in profits stemmed primarily from a one-time asset disposal: the sale of its Coatings business to Carlyle Group generated a post-tax gain of €3.5 billion, driving Q2 post-tax profit to €4.2 billion and net income to €4.1 billion—compared to just €79 million in the same period last year. Excluding this transaction, Q2 EBIT stood at €937 million (versus €293 million year-on-year); EBITDA excluding special items was €2.4 billion. Cash flow exhibited structural pressure: operating cash flow was €524 million, down €1.1 billion year-on-year—mainly due to higher raw material prices increasing inventory and accounts receivable, thereby tying up working capital; investment cash flow swung sharply positive by €5.5 billion, entirely attributable to proceeds from the coatings business sale; free cash flow turned negative at €189 million, highlighting mounting liquidity pressure. Three shared underlying drivers behind the exceptional performance of these two industry giants: 1. Middle East geopolitical tensions reshaping global feedstock supply, boosting integrated gross margins via product price hikes According to industry analysis, Middle East geopolitical tensions—and expectations of constrained traffic through the Strait of Hormuz—combined with tightening global polyolefin supply, constitute key external catalysts for this round of price increases. Restricted passage through the Strait directly impedes exports of naphtha and polyethylene from the Middle East, causing feedstock shortages and reduced operating rates at cracker units across Asia and Europe. This has tightened global supply of polyolefins and general-purpose chemicals, pushing spot prices sharply upward. Dow leveraged its low-cost ethane-based integrated capacity in North America—unaffected by geopolitical disruptions—to raise polyethylene prices twice, directly widening product spreads. Although BASF’s European facilities face energy cost pressures, its Chemicals and Materials segments successfully passed rising costs downstream, aligning with the global pricing cycle. Price increases thus became the primary driver of revenue growth for both companies. Meanwhile, Brent crude oil averaged significantly higher in Q2 2026 (€96.7 per barrel), prompting synchronized price hikes across chemical products. Systemic margin recovery across the global value chain followed—this logic mirrors the explosive Q2 earnings of domestic refining & petrochemical leaders such as Rongsheng and Dongfang Shenghong. Based on disclosed earnings reports and domestic private-sector refining forecasts, the sector-wide profitability recovery trend is unequivocal. 2. Global ‘cost reduction + capacity rationalization’ underway—proactive divestiture of high-cost assets Both companies have moved beyond passively enduring cyclical losses into active restructuring and streamlining—with highly aligned strategic actions: First, large-scale workforce reductions. Dow launched a global layoff plan targeting 4,500 employees, with 55% implemented in Q2; outsourcing was cut and automation deployed to replace labor. BASF reduced its global headcount by 7,000 between 2024 and end-June 2026; full-time staff at its Ludwigshafen site fell below 30,000—the lowest level since 1954—continuously compressing fixed costs.

Earning ¥10 billion in half a year—but share price halved from its peak

Wanhua’s Three Business Segments Wanhua currently operates three business lines: First tier: Polyurethanes—cash cow, contributing 73% of total gross profit, with a gross margin of 26.88%, far exceeding other segments. This remains Wanhua’s true profit engine. Second tier: Petrochemicals—revenue anchor, but nearly zero gross margin. In 2025, petrochemical segment revenue reached ¥84.2 billion—surpassing polyurethanes to become the largest revenue contributor. Yet its gross margin stood at only 0.58%, generating merely ¥485 million in gross profit for the full year. Third tier: New materials—still in the investment phase. In 2025, fine chemicals and new materials generated ¥33.189 billion in revenue, accounting for 16% of total revenue. This segment covers a broad product portfolio, including lithium battery materials (lithium iron phosphate, graphite anodes), POE (for photovoltaic encapsulation films), TPU (premium footwear and cables), PC (electronics & appliances), nylon 12 (automotive tubing), MS resins (high-end optical materials), and flavor & nutrition products (citral → vitamin A, menthol). However, as new products remain on the ramp-up curve, depreciation and labor costs are high—resulting in a 2025 gross margin of just 10.53%. Mid-Year Earnings Preview Shows Strong Growth On July 6, the company issued its 2026 semi-annual earnings forecast, projecting non-recurring net profit for H1 2026 at ¥9.6–10.2 billion, representing a 53.75%–63.36% year-on-year increase. What drove this substantial mid-year earnings surge? The core reason is the phased price rebound of polyurethanes beginning at the end of 2025—marking entry into an upward recovery cycle. With the Strait of Hormuz closed, Saudi supply was cut off; Japanese and Korean MDI producers—highly reliant on Middle Eastern feedstocks—were forced to reduce external shipments. Meanwhile, rising crude oil prices pushed up MDI production costs, prompting Dow, BASF, and Huntsman to sequentially raise prices. In Q2 2026, average market prices for pure MDI, polymer MDI, TDI, flexible foam polyether, and rigid foam polyether were ¥22,671, ¥17,826, ¥16,673, ¥10,120, and ¥9,853 per ton, respectively—up 18.98%, 18.04%, 5.95%, 6.39%, and 14.66% year-on-year (Baichuan Yingfu data). As Wanhua ranks among the world’s top MDI producers by capacity, it directly benefits from MDI price increases. Turning to the petrochemical segment: In January, the company completed a technical upgrade of its 1-million-ton ethane cracker, raising ethylene yield from 25–30% to 80%, substantially enhancing cost competitiveness—and potentially lifting the segment out of its prior marginal-profit or loss-making state. Most closely watched is the new materials segment—designated as the company’s second growth pillar. Its revenue share rose from 13.6% in 2023 to 16% in 2025, indicating initial maturity. The company has fully commissioned its vitamin A (VA) vertically integrated production chain, entered the high-end optical materials market via its MS resin facility, and expanded differentiated POE grades. Products like POE, high-end optical materials, and flavor & nutrition items have long relied on imports—leaving ample room for domestic substitution. The company has also secured early positioning in new-energy materials. As more high-value-added products scale up, profitability is expected to improve continuously. The company’s total budget for ongoing construction projects exceeds ¥170 billion; these projects will be commissioned over the coming years, serving as future growth engines. Current Valuation As noted at the outset, the company’s current P/E ratio sits at approximately the 33rd percentile of its historical range—meaning its valuation is cheaper than roughly 70% of its past valuations.

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