Key takeaway

3Q26 overseas refined-product margins remained high amid geopolitical conflicts in the Middle East and Russia. Meanwhile, China's refined-product exports increased significantly QoQ in 3Q2 6, providing a clear benefit to Zhejiang Petroleum & Chemical, which holds refined-product export quotas. Looking ahead, domestic policy constraints and overseas capacity closures may drive a cyclical inflection point in the petrochemical industry, increasingly highlighting the company's strengths as a leading private integrated refining and chemical producer. Meanwhile, the company continues to advance new materials projects and is expected to establish a fully integrated value chain spanning refining and chemicals, aromatics, and high-end new materials.

Event

RSPC released its 3Q26 report. In 9M26, the company recorded revenue of RMB193.599bn, down 15.02% YoY, and net profit attributable to shareholders of the parent company of RMB8.015bn, up 802.12% YoY. In 3Q26, the company recorded revenue of RMB64.192bn, down 1 8.93% YoY and 6.67% QoQ, and net profit attributable to shareholders of the parent company of RMB2.904bn, up 9 14.18% YoY and 26.53% QoQ.

Quick Take

Overseas refined-product margins remained high in 3Q26, while China's refined-product exports increased significantly QoQ. Since the beginning of 2026, geopolitical tensions in the Middle East and Russia have significantly disrupted the global supply of refined products. The resulting tightening in supply and demand drove a substantial widening of overseas refined-product margins. Based on Brent crude spot prices, Singapore diesel, jet fuel, and gasoline margins were USD57.5/bbl, USD54.9/bbl, and USD20.5/bbl, respectively, in 3Q26. These were up USD9.5/bbl, USD0.3/bbl, and USD4.1/bbl, respectively, from 2Q26, and up USD39.0/bbl, USD38.2/bbl, and USD11.5/bbl, respectively, from 2Q25. Meanwhile, China's refined-product exports increased significantly QoQ in 3Q26. According to data from the General Administration of Customs and Choice, domestic exports of diesel, gasoline, and jet fuel reached 3.99mn, 1.74mn, and 5.81mn tonnes, respectively, in 3Q26, up 2.98mn, 1.59mn, and 2.83mn tonnes QoQ. Total exports increased by 7.40mn tonnes QoQ. Zhejiang Petroleum & Chemical, which holds refined-product export quotas, fully benefited from strong overseas refined-product margins.

Domestic policy constraints and overseas capacity closures may drive a cyclical inflection point for the industry. On the one hand, the Work Plan for Stabilizing Growth in the Petrochemical and Chemical Industry (2025–2026) calls for “strict controls on new refining capacity and the reasonable determination of the scale and commissioning schedule of new ethylene and paraxylene capacity,” as well as “strict enforcement of capacity reduction and replacement requirements for new refining projects in the petrochemical sector.” On the other hand, according to China Chemical Industry Park, combined ethylene capacity in Europe, Japan, and South Korea will decrease by approximately 20mn tonnes per year from 2026 to 2035, including around 9–10mn tonnes under announced closure plans for 2025–2027. The global petrochemical industry landscape is gradually being reshaped and may approach a major cyclical inflection point, increasingly highlighting the company's strengths as a leading private integrated refining and chemical producer in China.

New materials projects advance in an orderly manner, building a full “ refining and chemicals-aromaticshigh- end new materials” industry chain. According to the company’s announcements, leveraging Zhejiang Petroleum & Chemical’s 40-million-tonne integrated refining and chemicals project, the world’s largest singlesite project of its kind, the company is accelerating its expansion into downstream chemical new materials, with a focus on new energy and high-end materials. It is currently prioritizing high-performance resins, high-end new materials and the Jintang new materials project, and is developing a range of new-energy and newmaterial products, including EVA, POE, DMC, PC and ABS, to continuously broaden its product portfolio. As the new projects steadily advance, the company will expand its production capacity for new energy materials, recyclable plastics, specialty synthetic materials and high-end synthetic materials in an orderly manner, gradually accelerating its transition toward new materials.

Investment recommendation: On the one hand, overseas refined product spreads remain elevated at this stage due to geopolitical conflicts, and Zhejiang Petroleum & Chemical, which holds refined product export quotas, is likely to continue benefiting. On the other hand, domestic policy constraints, coupled with overseas capacity closures, could drive a cyclical inflection point in the petrochemical industry. As a leading domestic refining and chemicals company, its competitive advantages are becoming increasingly prominent. In addition, the company is advancing the construction of new materials projects in an orderly manner, providing momentum for its medium- to long-term growth. We expect the company to achieve net profit attributable to shareholders of the parent company of RMB10.00bn, RMB11.26bn and RMB12.73bn in 2026-2028, corresponding to P/E multiples of 11.9x, 10.5x and 9.3x, respectively. We maintain “Buy” rating.

Risks:

1. Crude oil price volatility and supply security risks. As the company’s core raw material, crude oil directly affects its costs and profit margins through price fluctuations. International oil prices are affected by multiple factors, including global supply and demand, geopolitical developments and monetary policy. Sharp volatility could create a mismatch between the company’s production costs and product spreads, putting pressure on earnings stability. Meanwhile, the company relies on overseas crude oil imports. Geopolitical conflicts, trade frictions and shipping disruptions could interrupt crude oil supplies and increase transportation costs, threatening supply chain stability.

2. Petrochemical industry cyclicality and market competition risks. The petrochemical industry is highly cyclical, with profitability closely linked to macroeconomic conditions and downstream demand. Domestic refining, chemicals and polyester capacity continues to expand, intensifying market competition. Some products face oversupply pressure, while chemical product spreads continue to narrow, squeezing industry-wide profit margins. The company’s earnings are therefore exposed to periodic volatility.

3. Risks of project investment and industrial transformation falling short of expectations. The company continues to advance large-scale refining and chemical projects and high-end new materials projects, which involve substantial investment, long construction cycles, and high technical barriers. Uncertainties remain regarding construction progress, production ramp-up efficiency, and process stability. The high-end new materials business also faces challenges such as R&D bottlenecks, lengthy product certification cycles, and weaker-than-expected market adoption. Industrial upgrading and the emergence of new growth drivers may be delayed.

4. Financial structure and liquidity management risks. The refining and chemical industry is asset-intensive. The company has a relatively high overall debt level and faces significant financial leverage pressure. A tighter financing environment, rising interest rates, and slower cash collections would drive up financing costs, increase debt repayment pressure, and tighten working capital, creating liquidity risks and constraining daily operations and project investment.

5. Compliance risks related to environmental policies and the low-carbon transition. Under China's carbon emission peaking and neutrality goals, controls on environmental protection, energy consumption, and carbon emissions in the petrochemical industry continue to tighten. The company must continue to increase investment in environmental facility upgrades and the R&D of energy conservation and emissions reduction technologies, raising compliance costs. If environmental policies tighten further or the company's low-carbon transition lags, it may face capacity restrictions, production disruptions, and compliance penalties, which could weaken its longterm operating competitiveness.

6. Risks from changes in refined oil product export policies. Refined oil product exports are currently subject to quotas. Future changes in export policies may affect the company's operations and profitability.