The chemical industry in China has experienced a significant shift in growth trends since 2004, with both sales revenue and total profit reaching their peak. After 2005, the industry faced a downward trend that continued throughout 2006, with the potential for negative growth in the future. Despite a rebound in product prices during the second quarter of 2006 due to changes in supply and demand patterns, the basic chemical industry remains highly sensitive to production costs. As low-cost manufacturers continue to expand their capacities, equilibrium product prices are expected to decline further. Currently, four key sub-sectors—chlor-alkali, soda ash, pesticides, and inorganic salts—are in a recovery phase but are likely to face another downturn after an economic rebound. The tire industry, on the other hand, is still in a sluggish decline but may gradually recover as rubber prices fall. Meanwhile, the plastic products sector has already begun to show signs of recovery. Since 2006, the chemical industry has entered a downward trend, driven by slower downstream demand and cyclical factors. According to National Bureau of Statistics data, from January to July 2006, sales of chemical raw materials and products reached 10.814 billion yuan, up 26% year-on-year, but this was a 5 percentage point drop compared to the full-year 2005 level. Total profits were 58.5 billion yuan, up 9% year-on-year, but this represented a 6 percentage point decline from 2005. The growth rates of both sales and profits have been steadily declining. With the delayed impact of macroeconomic controls, domestic fixed asset investment and downstream demand for chemicals are expected to slow further. Over the past five years, from 2001 to 2005, the petrochemical industry completed a nine-to-ten-year upswing. In the next three to five years, the domestic chemical industry is expected to remain in a downturn. Sales growth for the chemical raw materials and manufacturing sectors dropped from 33.33% in 2004 and 31.15% in 2005 to 25.64% in the first seven months of 2006. Similarly, total profit growth fell from 86% in 2004 to 15% in 2005, then to 9.2% in the first half of 2006. These figures clearly show a declining trend over time. Mid-term reports of listed chemical companies in 2006 revealed a decline in both growth and profitability. For example, 70 sample companies saw a mere 6% year-on-year increase in main business revenue, while main business profits declined by 2%. After excluding some companies with large losses, net profit fell by 15%. Although revenue and profits rose in the second quarter due to seasonal factors, the overall trend remained weak. Different sub-sectors showed varied performance in the first half of 2006, influenced by changes in upstream and downstream prices. Sub-sectors like chlor-alkali, pesticides, and tires experienced rapid sales growth, while soda ash, pesticides, and plastic products saw strong profit growth. However, tire and inorganic chemicals sub-sectors suffered significant profit declines. The chlor-alkali industry saw no revenue growth due to overcapacity and falling PVC and chlorine prices. Soda ash production was hit by a sharp price drop. Pesticide companies benefited from lower raw material costs and increased demand, showing balanced growth. Plastic products also gained from lower raw material prices, with revenue and profit growth of 1.0%, 9.5%, and 11.7%, respectively. In contrast, the tire industry faced severe pressure from rising rubber prices, leading to higher revenues but lower profits. For instance, six tire companies saw revenue rise by 15.4%, but main business profits fell by 15.6%, and net profits dropped by 39.5%. The inorganic chemicals sector, including barium salts and titanium dioxide, experienced a significant downturn. Nine companies recorded revenue declines of 2.2% and profit drops of 13.9%, with net profits falling by 26.5%. Although some industries saw short-term rebounds, such as the price recovery of soda ash and PVC, these were seen as temporary. With the expansion of low-cost production capacity, long-term price declines are expected. Looking ahead, the basic chemical industry is projected to remain in a downturn for the next three years. Chlor-alkali, soda ash, pesticides, and inorganic salts are currently in a rebound phase but will likely enter another decline after economic recovery. The tire industry may slowly recover due to falling rubber prices, while the plastics sector continues its recovery. PVC prices, although rising temporarily due to higher calcium carbide and electricity costs, are expected to fall again as new capacity comes online. This will put pressure on profitability. Similarly, soda ash prices have risen due to strong downstream demand, especially from glass and alumina industries, but the market remains volatile. The pesticide industry has seen a recovery due to lower raw material costs and increased demand. However, the sector still faces challenges due to low entry barriers, overcapacity, and poor R&D investment. International trends suggest a shift toward finished products and distribution channels, offering opportunities for Chinese manufacturers if they can capture a share of the global market. The plastics industry, though facing high competition and overcapacity, has found some stability due to stabilized raw material prices. However, any improvement in profitability may attract more investment, leading to renewed overcapacity issues. Overall, the Chinese chemical industry is navigating a complex landscape of fluctuating demand, pricing pressures, and structural challenges. While some sectors show resilience, others face prolonged downturns. The path forward will depend on internal transformation, cost control, and strategic positioning in a rapidly evolving market.

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