China Securities Co., Ltd.: Carbon Neutrality Assessment Measures Introduced, Catalyzing Further Supply-Side Reforms in the Chemical Industry.

China Securities Co., Ltd. released a research report stating that the market has not yet fully priced in the extent of the rise in oil prices, and recommends that investors set their basis on the upward movement of oil prices to prevent potential liquidity risks and first position themselves in assets with certainty. From a medium-term perspective, the relative competitive advantage of Chinese chemical industry in the global market is strengthening, and the market bias towards inflationary pressures is also more favorable for profitable assets like HALO. After the impact of oil price shocks, it is advisable to look for smoothly transmission, core chemical assets with strengthened relative competitive advantages. Key points by China Securities Co., Ltd. are as follows: - The introduction of carbon peak and carbon neutrality assessment method will further catalyze the supply side of the chemical industry. - The assessment method officially issued by the General Office of the Communist Party of China and the General Office of the State Council, titled "Comprehensive Evaluation and Assessment Measures for Carbon Peak and Carbon Neutrality", sets out to conduct comprehensive evaluation and assessment of carbon peak and carbon neutrality for the party committees and governments of provinces (autonomous regions, municipalities directly under the Central Government) starting from the year 2026. The assessment method establishes control indicators and support indicators. The assessment results will serve as an important reference for the comprehensive evaluation, selection and appointment, and supervision and management of provincial leadership teams and relevant leading cadres. The implementation of the dual carbon goal is a sign of rising costs, promoting clearance, and accelerating industrial upgrading for typical high-energy-consuming chemical industries. - Identifying targets with short-term and medium-term EPS certainty benefits. - For the chemical ETF, indiscriminate sales in the past month have been a wrong move for some varieties that could benefit in the short to medium term. Data from the ETF shows that redemptions have eased, and after this round of adjustments, the stock prices and fundamentals of the chemical industry have synchronized. The impact on spot prices will become more significant in April, as the last oil shipments from the Middle East arrive and low-priced inventories are consumed. The bank expects to see further strengthening of spot prices for chemical products in April-May. Due to large overseas supply gaps and structural problems in domestic refined oil supply, chemical prices are expected to be more robust. Currently, the market's pricing of future oil prices is still only at $80, meaning that liquidity risks may not have been fully released yet, but this does not prevent the bank from finding relatively good investments in chemicals. Focus on targets that benefit from short-term and medium-term EPS certainty, represented by coal chemical and gas-to-head chemical sectors. - US-Iran conflict, revaluation of coal chemical energy security position, and price hikes and arbitrage opportunities for small-scale chemical varieties. 1) Oil-coal arbitrage: Geopolitical risks push up oil prices, while most coal chemical products' competitive routes are based on petroleum derivatives. Against the background of a widening oil-coal price gap, the coal-head product industry chain benefits significantly. 2) Energy security position of Xinjiang coal chemical industry: With increasing geopolitical risks, the coal-to-oil and gas production based on coal resources will once again receive strategic-level attention from the country, which has significant economic advantages. Looking ahead, combined with the rapid development of new energy sources in Xinjiang, Xinjiang is expected to become China's energy hinterland. 3) Price hike opportunities due to European supply chain risks: Soaring European natural gas prices are putting pressure on the costs of chemical products, particularly small additive products with low downstream cost ratios and good pricing foundations. From food additives like lysine and vitamins to plastic additives like anti-aging agents, price increases have already begun to be realized. Risk Analysis: (1) Unexpected sharp rise or fall in oil prices; (2) changes in industry competitive landscape; (3) macroeconomic fluctuations, global economic downturn.