Oil and Chemical Raw Material Supply Disruptions Weigh Down China's Industrial Growth

Overview

Nomura Research points out that China is facing severe disruptions in raw material supply due to blockades of energy transport routes caused by geopolitical conflicts in the Middle East. This external shock has significantly dragged down domestic industrial production, with April's industrial production value (IP) growth rate plunging to 4.1% year-on-year, hitting a new low in nearly three years. The report argues that the oil and chemical industry is the primary affected sector, directly dragging down overall industrial output by 0.7 percentage points, and indirect impacts could account for half of the total slowdown. Although the technology manufacturing sector continues to maintain high growth, it cannot offset the systemic pressures brought about by upstream raw material bottlenecks. It is expected that supply tensions will persist over the coming months, posing a substantial constraint on China's economy.

Core views

The core views of the report can be summarized as follows: 1. **Supply Disruptions Are the Main Cause**: The deterioration of the Middle East situation has increased the risk of closure of the Strait of Hormuz, directly affecting China's energy imports. In April 2026, China's crude oil imports fell by 20.0% year-on-year, reaching their lowest level since August 2022; natural gas imports also dropped by 23.1% year-on-year. Russia's alternative supply capacity is limited and cannot fill the gap. 2. **The Entire Industrial Chain Is Under Pressure**: Not only is crude oil processing hampered, but downstream chemical products are also severely affected. For example, asphalt production plummeted by 40.1% year-on-year, sulfur imports fell sharply by 72.4% year-on-year, and prices surged by 94.4%. Sulfuric acid production, known as the “mother of the chemical industry,” shifted from positive growth to -2.2%. Imports of key chemical raw materials such as ethylene and methanol fell by 46.3% and 28.6% respectively. 3. **Production Data Confirm the Crisis**: High-frequency data show that the operating rate of independent refineries in Shandong fell from 60.0% at the end of April to 54.7% at the end of May, further dropping to 53.6% at the beginning of June. Asphalt plant operating rates fell from 16.2% to 13.3%. Polyester filament factory operating rates also declined from 81.9% to 79.2%. These indicators suggest that supply shortages are spreading to the final manufacturing stages. 4. **Structural Contradictions Are Exacerbated**: China's "oil-protecting, chemical-reducing" strategy prioritizes ensuring petroleum processing, but raw material supply disruptions make this strategy unsustainable. Meanwhile, although the manufacturing Purchasing Managers' Index (PMI) has not fallen below the boom-bust line, sub-indices for key industries such as petroleum, chemicals, and rubber continue to stay below 50, reflecting a weak supply-demand balance. 5. **Far-Reaching Macro Effects**: The report estimates that the oil and chemical industry directly dragged down April's industrial growth rate by about 0.7 percentage points. Considering its 40% share of the raw materials industry, the overall impact could account for half of the current slowdown. Without the strong growth of 15.6% in the technology equipment sector (contributing 0.4 percentage points), industrial growth would have fallen below 4%.

Analysis framework

The report adopts a typical 'supply-demand framework + high-frequency data validation' analysis approach: First, it identifies external events (the Middle East conflict) as the core disturbance source; second, it dissects industrial production sub-data to pinpoint the most affected industries; third, it cross-validates capacity contraction realities using import data and factory operating rates as high-frequency indicators; finally, it combines macroeconomic models to estimate the weight of each link on overall economic growth. The entire reasoning logic is clear, progressing layer by layer from macro events → meso-industry → micro-enterprise operations, and is strongly supported by empirical evidence.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  In resource-based industries, the stability of the supply side often determines the extent to which demand can be realized. When supply is hit by external shocks, even if demand exists, it cannot be translated into actual output.

  This report focuses on the impact of raw material supply disruptions on industrial production precisely based on an analysis framework centered around 'supply constraints.' It emphasizes that even if China has strong industrial demand, if key raw materials cannot be imported, production cannot start, thus creating a paradox of 'demand without supply.'

• Cycle and Economic Sentiment FrameworkInventory Cycle

  When upstream raw material supplies are disrupted, companies quickly deplete existing inventories, causing inventory levels to drop rapidly and triggering decisions to halt or reduce production.

  The report's mention of a 26% decline in sulfur inventories and a sharp drop in asphalt production are precisely manifestations of the inventory cycle entering a downturn phase. Companies have had to lower operating rates due to raw material shortages, reflecting the sensitive regulatory role of inventory levels on production activities.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Disruptions in upstream raw material supplies will cascade through cost increases and capacity restrictions to midstream processing and downstream manufacturing links.

  The report details the complete transmission chain—from declining crude oil imports → shrinking refinery capacity → falling asphalt and chemical product output → reduced operating rates in downstream textile and construction industries—demonstrating the strong interdependence between upstream, midstream, and downstream sectors of the industrial chain.

Asset mapping & comparison

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

• Sinopec

  Benefiting from the national energy security strategy, it may receive more crude oil import quotas and policy preferences.

  Strengths

  Possesses large-scale refining and petrochemical integration capabilities and strong risk resistance.

  Weaknesses

  Some facilities rely on imported raw materials; if supply remains tight, it could still be affected.

  Comparison

  Compared to private refiners, state-owned enterprises have greater advantages in resource acquisition.

  Risks

  Fluctuations in international oil prices and escalation of geopolitical tensions leading to further restrictions

• Wanhua Chemical

  As the largest MDI producer in China, it relies on imported raw materials such as benzene and toluene; supply disruptions will directly impact its capacity utilization.

  Strengths

  Has strong R&D capabilities and can internally substitute some raw materials.

  Weaknesses

  Highly dependent on Middle Eastern imports for upstream raw materials, making its supply chain vulnerable.

  Comparison

  Compared to other companies in the same industry, its raw material structure is more concentrated in areas prone to shocks.

  Risks

  Soaring raw material prices, capacity restrictions, and delayed order deliveries

• Hengli Petrochemical

  Mainly engaged in the polyester industry chain, relying on imported ethylene glycol and methanol upstream; supply shortages will lead to inability to produce downstream products.

  Strengths

  Well-integrated layout with certain raw material buffer capacity.

  Weaknesses

  Lacks flexibility in varieties highly dependent on imports.

  Comparison

  Compared to some overseas-oriented companies, its ability to withstand external shocks is weaker.

  Risks

  Weak downstream demand coupled with raw material shortages squeezes profit margins

Key data

• April Industrial Production Growth Rate (YoY)4.1%The lowest level in nearly three years, far below the market expectation of 6.0%
• Oil and Coal Fuel Processing Industry Growth Rate (YoY)-0.9%The lowest point since August 2024
• Crude Oil Import Volume YoY Change-20.0%The lowest since August 2022
• LNG Import Volume YoY Change-23.1%The lowest since April 2018
• Sulfur Import Volume YoY Change-72.4%The lowest since October 2008
• Asphalt Production YoY Change-40.1%Worsening from March's -19.7%
• Sulfuric Acid Production YoY Change-2.2%Turning negative from March's 6.2% growth
• Ethylene Glycol Import Volume YoY Change-46.3%The lowest since 2007
• Methanol Import Volume YoY Change-28.6%The lowest since mid-2015
• Technology Equipment Industry Growth Rate (YoY)15.6%The only bright spot, contributing 0.4 percentage points

Impact & implications

This raw material supply disruption is not just a short-term disturbance—it exposes China's vulnerability in the global energy supply chain. In the long term, it will force the government to accelerate strategic reserve building and diversify import channels. For enterprises, it means reevaluating supply chain resilience, increasing safety stocks, or seeking alternative raw materials. From an investment perspective, this event reinforces the importance of the 'resource self-sufficiency' theme, and related fields such as domestic substitution, energy storage, and new energy materials may receive dual support from policies and capital. Moreover, if supply tensions persist, inflationary pressures cannot be ruled out, posing challenges for monetary policymakers.

Risks

• The Middle East situation continues to escalate, leading to prolonged closures of energy transport routes
• Russia and other alternative sources lack sufficient supply capacity to fill the gap
• After domestic inventories are exhausted, downstream companies are forced to cut production on a large scale
• Continued rise in raw material prices pushes up industrial costs and inflationary pressures
• Policy responses lag behind, failing to promptly release strategic reserves

What to watch

• Whether crude oil and natural gas import data will continue to deteriorate in the coming months
• Whether Chinese authorities announce the use of strategic reserves to ease supply pressures
• Price trends and inventory levels of key chemical products (such as ethylene glycol and methanol)
• The recovery of operating rates in downstream manufacturing industries (such as textiles and construction)
• Whether the government will introduce import subsidies or tax incentives for key raw materials