After experiencing a nearly two-year business cycle, the outlook for chemical products in 2022 has entered a downward period. The tightening of overseas policies on the demand side, coupled with the fluctuation of the domestic epidemic, has impacted the demand in most downstream fields; Supply side enterprises rely on profits during the boom period to expand their production capacity. At the current moment, we see that there is still no upward signal in the demand for chemical products in the future, and a new round of capital expenditure is about to enter the period of capacity deployment. The prosperity of most bulk chemical products may continue at the bottom. We believe that investment in the chemical industry in 2023 should focus from the bottom up on companies/industries that have a certain degree of growth. In summary, we have identified three major investment themes for the chemical industry in 2023.

Starting from long-term value, grasp the bottom area of core assets: under the background of "dual carbon", the core assets of domestic enterprises rely on themselves and have strong internal growth potential; With the rise of "Made in China", a group of leading domestic chemical enterprises have or will have global competitiveness, and their competitiveness will be further strengthened in the future. Focus on the safety margin and growth potential, seize the opportunity of underestimating the core assets of enterprises during the downward cycle.

In terms of new energy materials, relevant policies in China require a high growth in domestic demand for new energy such as wind power and photovoltaics. Specifically, wind power bidding can foresee a high increase in installed capacity in the future, the production of silicon materials can break through the bottleneck of photovoltaic installation, and the economic improvement of energy storage systems will drive demand explosion. The high growth rate of wind power, photovoltaics, and energy storage will drive upstream material demand. Key recommendations: semiconductor materials, aviation chemical materials, consumer chemicals, new energy (wind power, photovoltaic, energy storage) materials;

Risk Warning: The risk of macroeconomic weakening, the risk of less than expected implementation of environmental policies, the risk of continued deterioration of trade frictions, and the risk of significant price fluctuations for chemical products and diphenyl ether manufacturers.