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[Industry Focus]：Cyclical fluctuations in the chemical industry, when will the next boom cycle come?

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The Relationship between the Cyclicality of 1. Chemical Industry and Macro-economy

as a typical cyclical industry, the chemical industry's product price fluctuations are closely linked to earnings fluctuations, mapping cyclical changes. Through the study of the cycle theory of the chemical industry, enterprises, investors and policy makers can have a deeper understanding of the laws of industry operation, so as to make more reasonable strategic decisions. However, the relationship between the chemical industry and the macro-economy is complex and multifaceted, which needs to be analyzed in detail.

Macroeconomic impact on the chemical industry can not be ignored. Comparing the volatility of the GDP growth rate and the ethylene/naphtha spread, it is found that the correlation between the two is not strong between 2006 and 2024. GDP growth showed a downward trend, while the ethylene/naphtha spread showed cyclical fluctuations. This shows that although the macro-economy has a trend impact on the chemical industry, its role is delayed and restricted by multiple factors such as feedback from the end of the industrial chain. Therefore, it is difficult to fully reflect the true relationship between the two from the comparison of the unified time dimension.

Figure 1 Trend chart of China's GDP growth rate and ethylene/naphtha spread

中国GDP增速与乙烯石脑油价差走势图.jpg

data source: Business

2. Macroeconomic Cycle Theory and Chemical Industry Cycle

the theory of macroeconomic cycle provides an important reference for predicting the cycle of chemical industry. Mature economic cycle theories include Keynesian economic cycle theory, KondeGirayev cycle, Kangbo cycle theory and so on. Among them, the Campo cycle theory is widely used, and it is believed that there is a 50-60 year "boom, recession, depression, recovery" cycle in the global economy. According to the Campo cycle theory, the new cycle of the global economy since 1992 has been driven by information technology and artificial intelligence, and is expected to be a depression cycle from 2019 to 2030, with a rebound cycle after 2030.

Figure 2 Five Camwave cycles in history

data source: basic essence

specific Performance and Prediction of 3. Chemical Industry Cycle

due to the short information time of China's chemical market, long-term verification is difficult. However, according to industry experience, the chemical industry cycle is generally about 10 years. Through the analysis of the ethylene/naphtha price difference between 2006 and 2024, it is found that the price difference has two peaks in the statistical time, respectively in 2006 and 2016, with an interval of 10 years, which is consistent with industry experience. At the same time, there have been multiple phase highs in the small cycle, with an average interval of about 5 years.

Figure 3 CFR Northeast Asia ethylene and Japanese naphtha price difference (unit:$/t)

CFR东北亚乙烯与日本石脑油价差.jpg

data source: Business

based on the large cycle theory, it is expected that the inflection point of the next large cycle will occur between 2028 and 2030, which is still in the recession of the chemical industry. The small-cycle theory also suggests that it is currently in a small-cycle recession, with a bottom expected to occur after 2026. Therefore, it can be preliminarily concluded that China's chemical industry may begin a new boom cycle in 2030, and there will be a short small boom cycle around 2026.

Present Situation and Future Prospects of China's Chemical Industry in 4.

At present, China's chemical industry is in the end of large-scale development, large-scale integration of new projects significantly reduced, enterprises began to pay attention to fine management, industrial chain fine extension and technological transformation and upgrading. This shows that China's chemical industry has gradually entered the initial stage of high-quality development. However, at this stage, the pain of "old and new" conversion and the inadaptability of high-quality development are inevitable. Coupled with multiple factors such as the continuous slowdown of macroeconomic development, insufficient domestic demand, and limited external demand, the development of China's chemical industry is facing greater difficulties.

Nevertheless, China's chemical industry is still showing a positive development trend. With the gradual solution of the problem, China's chemical industry will come out of the recession period and enter the recovery period. During this period, it is recommended that enterprises strengthen internal management, improve technical level and comprehensive competitive strength to cope with the upcoming global competition.

Source: Chemical Flat Head Brother, Business Club, Base Essence, and Huayi World

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