Chemicals: The largest source of reversal expectations for 2026

Statistics from institutions such as Guojin Securities and State Development & Investment Corporation show that since 2023, integrated chemical plants established by Chinese enterprises domestically and in the Middle East and Southeast Asia have begun filling part of the gap left by Europe, Japan, and South Korea. Meanwhile, China’s chemical exports have hit record highs across multiple categories: according to Baichuan Information’s monitoring of 86 major chemical products, during January–August 2025, the monthly average export volume of 60% of these products ranked above the 80th percentile over the past six years—and for 40%, it reached the 100th percentile. The center of gravity for chemical production is shifting away from Europe, the U.S., and Japan—regions where energy and environmental compliance costs are high—toward China and a few resource-rich countries, which benefit from lower electricity prices and more complete industrial infrastructure, albeit while bearing greater environmental pressures. At home, an important signal has emerged. For several years, the buzzword has been “involution.” Multiple industries—including photovoltaics, lithium batteries, and chemicals—have followed the same trajectory: collectively expanding capacity amid high prices, only to descend into vicious price competition once new capacity comes online en masse and end-market demand falls short of expectations. The chemical industry experienced a steep rise in capital expenditure after 2017: annual expansion investments ran into hundreds of billions of RMB, compounded by weakening domestic demand from real estate and infrastructure sectors. As a result, large volumes of chemical products flooded global markets via exports—squeezing domestic profitability and exerting immense pressure on overseas producers. Thus, the 2025 anti-involution push naturally benefited the chemical sector. In July, authorities proposed “governance of unlawful, low-price, and disorderly competition in accordance with law and regulations; guiding enterprises to improve product quality; and promoting the orderly exit of outdated capacity.” By August, concrete measures followed: five ministries—including the Ministry of Industry and Information Technology—jointly issued the ‘Notice on Conducting Inventory and Evaluation of Aging Facilities in the Petrochemical and Chemical Industry,’ requiring comprehensive assessment of all facilities operating for over 20 years, and establishing timetables and methods for “shutdown, retrofitting, or capacity reduction and replacement” based on evaluation results. Coupled with earlier policies—such as centralizing energy-consumption review authority for new projects and enforcing strict entry thresholds for new capacity—this means that capacity adjustments in the chemical industry over the coming years will be driven more by “elevated standards + targeted lists,” rather than left to unregulated market competition. A few illustrative examples by subsector: In the organic silicon industry, industry-wide coordination meetings were held consecutively in November 2025, where leading enterprises reached consensus on production cuts and price stabilization; prices rebounded from a low of RMB 11,000 per ton to RMB 13,700 per ton by year-end. In spandex, new project approvals slowed and leading firms voluntarily cut output to rescue margins—prices began rising from their lows. Similar dynamics unfolded in refrigerants and agrochemicals. In polyurethane—a highly concentrated subsector—the supply-side shift is reflected even more directly in oligopolistic interactions among global players. Wanhua Chemical, BASF, Huntsman, Dow, and Covestro collectively control over 90% of global MDI/TDI capacity. At the end of 2025, BASF first raised MDI prices in South Asia; Wanhua followed with multiple price hikes across Southeast Asia, Europe, the Middle East, and Africa; Huntsman and Dow soon joined suit. Covestro signaled firm pricing intent through its “fixed-price” strategy. Underlying this was a confluence of supply constraints—including unplanned European maintenance outages, ethylene shortages, and seasonal shutdowns—but more fundamentally, the high concentration enabled meaningful “price coordination space.” As a result, the amplitude of supply fluctuations in the next cycle has unequivocally narrowed.

Sichuan Dajuece Investment Consulting: Global restructuring reshapes the landscape; the polyurethane industry enters a profit-upcycle.

The polyurethane industry’s value chain comprises three tiers: upstream—core chemical raw materials such as MDI and polyols, whose highly concentrated capacity dictates overall cost trends; midstream—deep processing of various polyurethane products, constituting the industry’s core operational segment; and downstream—diverse end-user sectors including construction, home appliances, automotive, and new energy. Overall, the industry’s evolution is propelled by emerging downstream demand and green-process innovation upstream, steadily advancing toward decarbonization, high-end differentiation, and import substitution. 3. Polyurethane Market Size Expands Steadily Domestic demand for polyurethane materials remains stable and gradually increases. From 2001 to 2018 marked the fastest growth phase for China’s polyurethane industry. By the latter stage of the 13th Five-Year Plan (2016–2020), domestic development entered maturity, with consumption growth moderating—but R&D investment continued rising, indigenous innovation capability strengthened further, and differentiated products proliferated. As of 2024, China accounted for over 45% of total global patent applications in polyurethane technology. According to Chlor-Alkali Network data, China’s compound annual growth rate (CAGR) for polyurethane product consumption stood at approximately 1.4% between 2018 and 2022. Globally, the polyurethane market is projected to grow from USD 91.49 billion in 2024 to USD 135.1 billion by 2032, representing a CAGR of 4.4%. 4. Recently, the Polyurethane Value Chain Entered a New Round of Coordinated Price Adjustment Domestically, Wanhua Chemical announced effective July 29 a USD 200/ton (approx. RMB 1,352/ton) increase in MDI and TDI prices across Southeast Asia. Overseas, on July 24, Huntsman issued a price adjustment notice raising MDI prices across Europe, Africa, and the Middle East by EUR 250/ton (approx. RMB 1,930/ton), effective August 1, 2026. Additionally, Huntsman announced effective July 27 a USD 300/ton (approx. RMB 2,020/ton) increase for MDI and polyurethane system products in India and the Indian subcontinent. Shanghai Huntsman’s August挂牌 price for polymer MDI stood at RMB 19,500/ton—an increase of RMB 1,500/ton. Meanwhile, BASF Shanghai’s August挂牌 price for TDI was set at RMB 19,000/ton, up RMB 1,000/ton. Both Huntsman and Wanhua explicitly cited sustained geopolitical tensions in the Middle East—driving sharp increases in raw material, transportation, and logistics costs—as the primary reason for the price hikes. On the supply side,密集 issuance of price adjustment notices by leading domestic and overseas enterprises—combined with facility maintenance shutdowns and overseas supply disruptions—has strengthened market resolve to support prices. On the demand side, according to TianTian Chemical data, China’s MDI exports totaled 505,000 tons in the first half of 2026, up 22.5% year-on-year; June alone saw exports of 109,000 tons, up 56.4% year-on-year. Over the same period, imports amounted to 155,000 tons, down 5% year-on-year.

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