IDC demand has recovered, so why have prices and profits not yet followed?

  • Guotai Haitong believes the third IDC upcycle has reached its midpoint: BAT capital expenditure in the first half of 2026 was close to 200 billion yuan, approaching the 215.1 billion yuan spent in all of 2025. But centralized procurement by major customers has strengthened their bargaining power, and existing capacity is still being absorbed, so the recovery in demand has not been accompanied by higher rents.
  • Revenue must clear two hurdles: delivery and customer installation. GDS Holdings’ contracted capacity awaiting billing rose from 450 MW at the start of 2026 to 757 MW at midyear. Contract delivery can take up to four quarters, followed by a ramp-up that takes a similar period on average; there is a clear lag between growth in contracted capacity and current-period revenue growth.
  • Upgrades can also initially depress returns. The Runze A-18 assessment model forecasts that upgrades and ramp-up in 2027 will lower the average occupancy rate from 99% to 86.63% and colocation revenue from 543 million yuan to 475 million yuan. Contracts typically lock in prices for three to eight years, making low rents difficult to reprice quickly; cost recovery therefore depends more on occupancy and power-use efficiency.
  • The firm believes that the fourth-quarter shift toward valuation based on the following year’s earnings creates a valuation window, and uses EV/EBITDA to assess asset-heavy operations. However, projects brought into operation in the second half must be counted according to the actual months billed; when delivery is delayed, depreciation and basic operations and maintenance costs have already been incurred, so profit realization will lag.

Why can higher acetic acid prices amplify company profits?

  • The supply change tracked by Tianfeng is INEOS’s announcement on 22 September that it would mothball a unit at its Hull site in the UK, affecting approximately 500 thousand tonnes per year of acetic acid capacity, mainly because of high European energy costs. Reduced European supply could increase import demand; China exported 937 thousand tonnes in the first eight months of 2026, already 83.4% of the full-year total for 2025, but those export figures predate the closure announcement.
  • The price recovery is already reflected in industry profitability: the average price on 8 October was 4688 yuan per tonne, up 86.62% from the start of the year; the industry gross profit per tonne listed in the report was 1385 yuan, well above the June average of 160 yuan. The key to profit sensitivity is a wider spread: estimates indicate that each 100 yuan per tonne increase in Jiangsu Sopo’s spread adds approximately 90 million yuan to after-tax profit, equivalent to 102.3% of its net profit attributable to shareholders in 2025.
  • Supply is not shrinking continuously. Domestic capacity utilization in 2025 was approximately 69.4%, and planned new capacity for 2026 through 2028 is 155, 100, and 1.3 million tonnes respectively. Existing idle capacity and subsequent additions are important supply-side context for judging whether export-driven demand can continue to translate into wide spreads.

Why does Huachuang remain positive on tanker supply and demand despite a fall in spot rates?

  • In the week ending 9 October, the VLCC spot freight index fell 25% week on week, while one-, two- and three-year time-charter rates each fell by no more than 2%. Huachuang attributes the short-term decline to safety concerns, high freight rates narrowing cross-regional arbitrage opportunities, and cargo owners slowing shipments; it believes the main change is in the pace of transport.
  • The assessment is supported by additional capacity being tied up: Clarksons estimates that current crude tanker capacity demand is more than 13% above its 2025 level, with about 10 percentage points coming from diversions, ship-to-ship transfers and waiting related to Middle Eastern exports. If these efficiency losses ease, the associated support for demand will also change.
  • Lifting sanctions does not mean ships immediately enter the compliant market. Subject to vessel age, insurance, port acceptance and review procedures, China Merchants Energy Shipping preliminarily estimates that fewer than 20 VLCCs released from sanctions will ultimately be able to enter the market.

What supports expectations that UHV tenders will double?

  • Huayuan’s tracking shows that the value of State Grid UHV contracts awarded in 2026 has reached 32.9 billion yuan, nearly 50% higher than the full-year total for 2025; the number of major AC projects approved has also risen from two last year to four this year, with the project pipeline and equipment procurement accelerating in tandem.
  • The one AC and two DC projects approved on 15 October have total investment of approximately 59.1 billion yuan and are expected to be tendered together in the next batch. They are the main basis for expectations that the full-year tender value could double from 2025. The 59.1 billion yuan is total project investment; order growth for equipment companies also depends on the scale of subsequent tenders and their respective shares of contracts awarded.