Huatai Securities: Geopolitical conflicts may highlight the resilience of China's energy and chemical supply chains

Huatai Securities Research Report points out that recent uncertainties in Iran have triggered global concerns over oil, gas, and some chemical supplies, leading to a wave of price increases worldwide. We believe that: 1) The crude oil market, along with risk premiums and global strategic stock replenishment adjustments, is restoring supply and demand balance. Under scenarios without long-term production disruptions in Middle Eastern oil fields, we have raised our 2026 Brent crude price forecast to $78 per barrel, benefiting oil and gas extraction and coal-to-olefins; 2) China’s chemical industry chain is resilient, with short-term supply impacts weaker than overseas companies. Once supply chain expectations stabilize, global stock replenishment will support continued recovery in the chemical sector. Focus on leading companies with complete industry chains; 3) If international grain prices rise due to cost pass-through, domestic amino acid companies are expected to benefit, and overseas urea producers will also turn around their difficulties; 4) Substitutable demand categories are likely to have longer-term development opportunities, including wind and solar storage, green hydrogen, bio-manufacturing, and resource recycling.

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Huatai | Petrochemicals: Geopolitical Conflicts May Highlight the Resilience of China’s Chemical Supply Chain

Recent uncertainties in Iran have raised global concerns over oil, gas, and some chemical supplies, driving a wave of price increases worldwide. We believe that: 1) The crude oil market, along with risk premiums and global strategic stock replenishment adjustments, is restoring supply and demand balance. Under scenarios without long-term production disruptions in Middle Eastern oil fields, we have raised our 2026 Brent crude price forecast to $78 per barrel. In extreme cases, if oil production facilities in producing countries suffer short-term, irreparable damage and infrastructure like desalination plants are impacted, we estimate the Brent price could rise to $95 per barrel.

2. China’s chemical industry chain is relatively complete, demonstrating supply chain resilience. According to Longzhong Information, in 2025, China’s crude oil extraction was 220 million tons, crude oil imports 580 million tons, and refinery crude processing 740 million tons. Main downstream products—gasoline, diesel, kerosene, and olefins—were produced at 150, 200, 60, and 70 million tons respectively, with year-over-year changes of -3%, -2%, +6%, and +12%. Finished oil general trade exports reached 36.44 million tons. As of the end of 2025, China’s apparent onshore crude oil inventory exceeded 1.2 billion barrels, with about 50% imported from the Middle East. Assuming an 80% reduction in Middle Eastern crude imports, demand remains stable, and by releasing onshore inventories, China can maintain nearly 260 days of supply. In more severe scenarios, China could reduce finished oil exports, accelerate the substitution of gasoline and diesel with new energy sources, cut excess petrochemical production, and increase imports of crude oil from Africa and Canada to ensure supply chain stability.

3. Overseas energy and raw material supply shocks may be more pronounced. According to EI, in 2024, Europe, Japan, and South Korea will consume 59%, 56%, and 61% of their energy from oil and natural gas, which are critical raw materials for energy and chemical production. Fluctuations in energy/raw material supply and potential declines cannot be ignored. Bloomberg and Baichuan Yingfu report that in 2024, overseas capacity shares for MDI, PVA, methionine, and VE are 52%, 41%, 54%, and 49%. Since late February, international prices for crude oil, natural gas, and sulfur have risen sharply, leading to significant price increases for MDI, methionine, and VE. Domestic companies involved are expected to benefit fully.

4. Global shortages of refined oil and fertilizers are creating opportunities for alternative demand categories, including wind and solar storage, green hydrogen, bio-manufacturing, and resource recycling.

Risk Warnings: Continued geopolitical conflicts; significant fluctuations in crude oil prices; rapid demand decline leading to disrupted chemical price transmission.

(Source: Jiemian News)