EB SECURITIES: The downstream demand for soda ash and PVC is waiting for recovery. "Anti-internal incision" is expected to accelerate the clearing of the supply side.

EB SECURITIES released a research report stating that on July 19th, the Yarlung Tsangpo River downstream hydropower project officially started construction. The project is located in Nyingchi City, Tibet Autonomous Region, and mainly adopts the development method of straightening the bend and tunneling for water diversion, constructing 5 cascade power stations with a total investment of approximately 1.2 trillion yuan. The project's electricity will mainly be transmitted out of the region, while also meeting the local demand in Tibet. The Yarlung Tsangpo River downstream hydropower project is not only a milestone in the energy and infrastructure fields, but also a systemic practice of China's comprehensive development, security, ecology, and innovation. Its market impact will have a long-term influence on industries such as infrastructure, energy, and materials, while its strategic value is reflected in multiple dimensions such as national energy security, border stability, and global climate governance. It is recommended to pay attention to chemical products related to infrastructure, such as soda ash, PVC, and water reducing agents. The main points of EB SECURITIES are as follows: 1. The release of the "anti-exhaustion" policy combined with the commencement of the Yarlung Tsangpo River hydropower project, focus on chemical products related to infrastructure On July 18th, the State Council Information Office held a press conference to introduce the development of industry and information technology in the first half of 2025. Xie Shaofeng, chief engineer of the Ministry of Industry and Information Technology, stated that a new round of work plans for stabilizing growth in key industries such as steel, non-ferrous metals, petrochemicals, building materials, etc., would be implemented to promote structural adjustment, supply optimization, and elimination of outdated capacity in key industries. Specific work plans will be released in the near future. In January 2025, Zhang Yunming, Deputy Minister of Industry and Information Technology, stated that a new round of work plans for stabilizing growth in key industries would be implemented, with the aim of fully tapping the effects of large-scale, wide-ranging, and powerful industries such as steel, non-ferrous metals, petrochemicals, chemicals, building materials, machinery, automobiles, power equipment, light industry, and electronics. The support for industrial provinces and cities will be increased. The policy mechanism for promoting orderly industrial transfer will be improved, supporting the development of local distinctive advantageous industries to make more contributions to industrial economic growth. This time, the Ministry of Industry and Information Technology once again proposed a work plan for stabilizing growth in key industries, clearly aiming to adjust industry structures, promote supply-side optimization, and eliminate outdated capacity, which is expected to lead in the orderly development of the petrochemical industry. On July 19th, the Yarlung Tsangpo River downstream hydropower project officially started construction. The project is located in Nyingchi City, Tibet Autonomous Region, and mainly adopts the development method of straightening the bend and tunneling for water diversion, constructing 5 cascade power stations with a total investment of approximately 1.2 trillion yuan. The project's electricity will mainly be transmitted out of the region, while also meeting the local demand in Tibet. The Yarlung Tsangpo River downstream hydropower project is not only a milestone in the energy and infrastructure fields, but also a systemic practice of China's comprehensive development, security, ecology, and innovation. Its market impact will have a long-term influence on industries such as infrastructure, energy, and materials, while its strategic value is reflected in multiple dimensions such as national energy security, border stability, and global climate governance. It is recommended to pay attention to chemical products related to infrastructure, such as soda ash, PVC, and water reducing agents. 2. Soda ash: The concentration of the industry is expected to increase under the background of the "anti-exhaustion" policy. The improvement in demand for photovoltaic glass is expected to benefit soda ash. By 2024, there were 15 companies in the soda ash industry with a production capacity of over 1 million tons, totaling 30.9 million tons, accounting for approximately 70% of the total capacity of 44.45 million tons. The top three companies, Henan Jinshan, Inner Mongolia Berun Chemical, and Shandong Haihua, have capacities of 6.7 million tons, 5 million tons, and 3 million tons, respectively, with a CR3 concentration ratio of about 33% and a CR6 concentration ratio of 45%. The distribution of soda ash production capacity in the domestic industry is relatively dispersed. According to the "Admission Conditions for the Soda Ash Industry" issued by the Ministry of Industry and Information Technology in 2010, the annual production capacity of ammonia soda method soda ash for new or expanded projects should not be less than 1.2 million tons, and the annual production capacity of soda ash for the lime-soda method should not be less than 600,000 tons. In addition, certain requirements are also imposed on the energy consumption, emissions, and product quality of new or expanded soda ash projects. Pressure from environmental policies has led to the closure of some soda ash manufacturers. Although the "Admission Conditions for the Soda Ash Industry" was abolished by the state in 2020, new soda ash projects are still limited as a high-pollution industry. From 2025 to 2026, China plans to put into operation an additional soda ash production capacity of 8.68 million tons, accounting for 20% of the total capacity in 2024. With the introduction of the "anti-exhaustion" policy in the chemical industry, the supply-side reform in the soda ash industry is expected to continue, thereby promoting improvement in the supply side and increase in the concentration of the industry. With downstream glass consumption awaiting recovery and the potential for a boost in soda ash demand from the installation of photovoltaics In 2024, China's flat glass production was approximately 418.5 million tons, a year-on-year increase of 3%, with a CAGR of 1.1% from 2020 to 2024. Assuming that 0.2 tons of soda ash is needed to produce 1 ton of glass, the production of flat glass in 2024 corresponds to a demand for 83.7 million tons of soda ash. Due to the low enthusiasm in the real estate market, the growth in glass production has been slow, which has weighed on the demand for soda ash. In 2024, the total new photovoltaic installations in China were 278 million kilowatts, a year-on-year increase of 28%, with a cumulative installed capacity reaching 886 million kilowatts, a year-on-year increase of 45%. The increase in photovoltaic installations is expected to drive demand for photovoltaic glass, thus partially restoring the demand for soda ash. 3. PVC: Infrastructure and real estate demand awaiting recovery, stricter environmental protection policies combined with the "anti-exhaustion" policy driving industry structural transformation and upgrading In the downstream consumption structure of PVC (calculated by consumption volume), the construction industry is still the main application field of PVC, with pipes, fittings, and profiles accounting for 41% of the consumption volume in 2024, indicating a close correlation between PVC demand and the real estate and infrastructure industries. Due to the sluggish market conditions in infrastructure and real estate, the apparent consumption volume of PVC has only grown at a CAGR of 1.26% from 2019 to 2024, with a consumption volume of approximately 20.89 million tons in 2024, a 1.31% increase over the previous year. The downstream demand for PVC is still awaiting recovery. By July 2025, China's PVC production capacity was 28.86 million tons, with the top three companies, Xinjiang Zhongtai Chemical, Xinjiang Tianye, and Xinfag Group, having capacities of 2.1 million tons, 1.4 million tons, and 1.15 million tons respectively, with a CR3 concentration ratio of approximately 16% and a CR6 concentration ratio of 26%, indicating a relatively low concentration of PVC production capacity in the domestic industry. PVC is a traditional high-pollution, high-energy-consuming industry. The "Minamata Convention on Mercury" issued in August 2017 requires a reduction in mercury emissions, support for the development of low-mercury and mercury-free catalysts, and prohibits the use of mercury-containing catalysts five years after the confirmation of the feasibility of mercury-free catalyst technology. In the previous "Work Plan for Stabilizing Growth in the Petrochemical Industry" issued in 2023, it was proposed to promote energy-saving, pollution reduction, and carbon reduction reform in the PVC industry. In the context of stricter environmental policies, the incremental growth in PVC supply is limited. In 2024, China's PVC production was 23.28 million tons, with a year-on-year growth rate of only 3.4%. The estimated increase in PVC production capacity for 2025-2026 is 5 million tons, accounting for 17% of the total capacity in 2024. The continued tightening of environmental policies, combined with the introduction of the "anti-exhaustion" policy, is expected to drive industry structural transformation and upgrading, as well as the increase in industry concentration, leading to the clearance of small and outdated production capacity. Risk warning: Policy progress falling short of expectations, slower than expected progress in capacity elimination, and fluctuation risks in industry sentiment.