Refinery utilization and crude inventories continue to decline; UBS recommends watching fluorochemicals and re-rating opportunities in chemical leaders

Overview

This is a UBS weekly data-tracking report on China's oil & gas chemicals industry, covering refinery utilization, crude inventories, utilization rates for major chemical products, sampled factory inventories, and stock preferences. The report notes that independent refinery utilization in the refining segment continued to decline, China's total crude processing volume fell back, and crude inventories have been trending down since early June; within chemicals, utilization and inventory performance diverged across categories, with polyester filament utilization weakening significantly but inventories building sharply.

Core views

UBS favors companies that benefit from easing Middle East tensions, including Tongkun Group, a polyester filament company that is highly sensitive to raw material prices, as well as phosphorus chemical-related companies. It also favors chemical leaders Wanhua Chemical Group and Jiangsu Yangnong Chemical, which have re-rating potential. The report further highlights fluorochemical applications in semiconductors and data centers, arguing that higher AI-driven computing demand and material system upgrades will accelerate growth in fluorochemical applications, while fluorochemical material suppliers currently trade at a clear discount versus electronic chemical material companies, meaning the market has not fully priced in the AI-driven growth opportunity.

Analysis framework

The report uses a weekly high-frequency tracking framework, observing refinery utilization, crude processing volumes, Kpler crude inventories, utilization rates along major chemical chains, and inventory changes at sampled factories, while combining industry conditions, raw material prices, Middle East developments, incremental AI applications, and valuation discounts to form views on key stocks and sub-sectors.

Methodology notes

• Industry data trackingWeekly utilization and inventory tracking

  Assess marginal changes in supply and demand through refinery, chemical plant utilization rates, and sample inventories.

  The report tracks utilization rates for state-owned refineries, independent refineries, ethylene, PE, PP, PVC, PX, PTA, polyester filament, MDI, TDI, and TiO2, as well as inventories of PP, PE, PVC, TiO2, polyester filament, and organic silicon DMC.

• Data sourceKpler crude inventory data

  Use third-party crude inventory data to observe changes in China's crude inventories.

  The report cites Kpler data showing that China's overall crude inventory has declined since early June and stood at 1,268 MMbbl as of June 22.

• Valuation methodDCF

  Discounted cash flow valuation.

  The report discloses that Wanhua Chemical Group and Jiangsu Yangnong Chemical are valued using the DCF method.

• Valuation methodP/BV versus ROE

  Price-to-book relative to ROE valuation.

  The report discloses that Tongkun Group is valued using the P/BV versus ROE method.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tongkun Group

  A beneficiary of polyester filament, disclosed rating is Buy.

  Strengths

  Highly sensitive to raw material prices; if oil prices or upstream cost pressure ease, earnings elasticity may improve.

  Weaknesses

  Polyester demand is vulnerable to macro uncertainty, and new PTA capacity may continue to weaken fundamentals.

  Comparison

  The report lists it as one of the beneficiaries of easing Middle East tensions.

  Risks

  Weaker polyester demand, deteriorating PTA fundamentals, uncertainty over new refinery capacity additions, and tighter environmental and carbon-emissions policies.

• Wanhua Chemical Group

  A chemical leader with re-rating potential, disclosed rating is Buy.

  Strengths

  As a chemical leader, the report sees re-rating potential; valuation uses the DCF method.

  Weaknesses

  Its MDI and petrochemical businesses are sensitive to the economic cycle, price competition, and the fundamentals of China Petrochemical.

  Comparison

  Along with Yangnong Chemical, it is listed as a preferred chemical leader with re-rating potential under Buy ratings.

  Risks

  Lower MDI demand due to an economic slowdown, price wars triggered by MDI capacity expansion among leading producers, weak China Petrochemical cycle conditions, breakthroughs in MDI technology by other leaders, and uncertainty in the development of the new materials segment.

• Jiangsu Yangnong Chemical

  A chemical leader with re-rating potential, disclosed rating is Buy.

  Strengths

  The report believes it has re-rating potential; valuation uses the DCF method.

  Weaknesses

  The agrochemical industry is highly affected by policy, product iteration, and export exchange rates.

  Comparison

  It is listed together with Wanhua Chemical Group as a chemical leader with re-rating potential.

  Risks

  New technologies or products disrupting the existing market structure, policy changes and product bans affecting profitability, exchange-rate risk from export revenue, and industry consolidation or spin-offs changing the competitive landscape.

• Fluorochemical material suppliers

  Theme assets benefiting from growth in semiconductors, data centers, and AI-related applications.

  Strengths

  Higher AI computing demand and material system upgrades are expected to drive rapid growth in fluorochemical applications, and current valuations remain discounted relative to electronic chemical material companies.

  Weaknesses

  The report does not list specific company names, so investment mapping still needs to be validated against company coverage and earnings contribution.

  Comparison

  Compared with electronic chemical material companies, fluorochemical material suppliers trade at a clear valuation discount.

  Risks

  AI-related demand may fall short of expectations, material adoption may progress more slowly than expected, competition may intensify, and valuation re-rating may be weaker than expected.

Key data

• Average utilization rate of state-owned refineries67.41%Up 0.23 percentage points week over week.
• Independent refinery utilization rate45.74%Down 2.9 percentage points week over week.
• China's total crude processing volume12,321 kb/dDown 128 kb/d week over week.
• China crude inventories1,268MMbblKpler data, as of 2026-06-22, continued to decline since early June.
• Ethylene utilization rate on the MTO route78%Down 5 percentage points week over week and 11 percentage points year over year.
• PP utilization rate63%Down 1 percentage point week over week and 15 percentage points year over year.
• Polyester filament utilization rate74%Down 2 percentage points week over week and 15 percentage points year over year.
• PP sample inventory452ktDown 2% week over week and 26% year over year.
• PE sample inventory476ktDown 1% week over week and 5% year over year.
• Organic silicon DMC sample inventory40ktDown 4% week over week and 21% year over year.
• Polyester filament sample inventoryUp 10% week over week, up 112% year over yearInventories built significantly, jointly reflecting pressure from weakening utilization and demand or destocking.
• Disclosure table stock ratingsJiangsu Yangnong Chemical, Tongkun Group, and Wanhua Chemical Group are all BuyPrice date is 2026-06-22.

Impact & implications

At the industry level, falling refinery utilization and crude inventories indicate that supply-demand balance and procurement rhythms in the petroleum chain are still adjusting. Within chemicals, the picture is clearly mixed: declining inventories for PP, PE, and organic silicon DMC are relatively favorable, but the sharp increase in polyester filament inventory suggests demand pressure still needs to be monitored. From an investment perspective, if easing Middle East tensions reduce raw material price pressure, downstream chemical companies may benefit in profitability; meanwhile, AI computing demand and material upgrades in semiconductors and data centers may become a new growth narrative and valuation re-rating catalyst for fluorochemical material suppliers.

Risks

• Declining or highly volatile crude oil prices.
• Less-than-expected improvement in reserves and productivity.
• Declines in prices of major petrochemical products.
• Sharp swings in chemical company profitability caused by changes in international oil prices.
• Macroeconomic uncertainty suppressing chemical demand.
• Capacity additions faster than expected, leading to a significant deterioration in chemical fundamentals.
• Continued accumulation of polyester filament inventories and weaker-than-expected demand recovery.
• Slower-than-expected growth in fluorochemical demand related to AI and semiconductors.

What to watch

• Whether China's crude inventories continue the downward trend seen since early June.
• Whether independent refinery utilization stabilizes around 45.74% and whether state-owned refinery utilization continues to improve modestly.
• Whether the sharp buildup in polyester filament inventory is followed by destocking, and whether utilization falls further.
• Whether inventory declines in PP, PE, and organic silicon DMC can translate into improvements in prices or margins.
• The impact of changes in Middle East tensions on crude oil and chemical raw material prices.
• Orders, certifications, and profit contributions for fluorochemicals used in semiconductors, data centers, and AI-related materials.