Rongsheng Petrochemical’s third-quarter profit rises 27% quarter on quarter as cost pressures shift in the fourth quarter
A recovery in refined-product exports and higher plant utilisation drove third-quarter profit growth, but JPMorgan expects crude procurement and freight pressures to weigh on fourth-quarter profit and maintains a neutral rating.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
Rongsheng Petrochemical benefited from a recovery in exports and higher utilisation in the third quarter, but JPMorgan believes the cost tailwind is fading and fourth-quarter earnings may fall quarter on quarter.
Where did third-quarter profit growth come from?
Rongsheng Petrochemical reported net profit of 2.9 billion yuan for the third quarter of 2026, up 27% quarter on quarter and at the upper end of its earlier guidance range of 2.7 billion to 3.1 billion yuan; net profit for the first three quarters reached 93% of the full-year market consensus.
JPMorgan attributes the quarter-on-quarter earnings growth primarily to the recovery in Zhejiang Petrochemical’s refined-product exports and higher plant utilisation without maintenance shutdowns. By contrast, Hengli Petrochemical guided for a 7% quarter-on-quarter decline in third-quarter net profit.
Zhejiang Petrochemical received 2.7 million tonnes of refined-product export quota in the first half but used only 900 thousand tonnes because of export restrictions. After restrictions eased in early July, management said it had exported 800 thousand tonnes from 7 through August and planned to use the remaining 1 million tonnes; JPMorgan estimates that most of the quota was used in the third quarter.
Why might fourth-quarter profit decline?
Crude procurement costs provided a tailwind in the third quarter: in July, the company locked in more than 14.5 million barrels of crude at 80 to 85 dollars per barrel, below the purchase price of about 100 dollars per barrel from 4 to May.
JPMorgan expects cost pressure to become a headwind in the fourth quarter: domestic refined-product price adjustments have been smaller than implied by the formula, while refiners also face higher freight costs. In the fourth quarter through the report date, spot VLCC freight rates from the Middle East to China rose by more than 2.5 times from the previous quarter.
The bank therefore expects Zhejiang Petrochemical’s fourth-quarter earnings to decline quarter on quarter amid weaker margins and narrower naphtha cracking spreads.
Why is the rating still neutral after earnings forecasts were raised?
After factoring in some inventory gains, export profits and higher aromatics spreads, JPMorgan raised its 2026 and 2027 net profit forecasts by 26% and 8%, respectively, to 9.425 billion yuan and 8.457 billion yuan; the forecast for the latter year remains below that for 2026.
The bank maintained its neutral rating and its June 2027 target price of 11.50 yuan per share, based on the company’s 10-year average price-to-book ratio of 2.3 times.
Zhejiang Petrochemical is expanding into specialty chemicals and new materials. Company guidance says that once all these projects are operational, they could contribute more than 8 billion yuan in net profit at mid-cycle margins; JPMorgan believes industry oversupply will leave actual earnings significantly below that level.
What has changed on the balance sheet?
At the end of the third quarter of 2026, Rongsheng Petrochemical’s net debt-to-equity ratio fell to 133%, down 19 percentage points from the end of the second quarter and its lowest level in three years. JPMorgan expects the company to continue focusing on deleveraging in the near term.
