The scale of oil refining and ethylene is an inevitable trend of development, and new plants are expected to dominate future capacity upgrades. The scale and intensification of China's refineries is far lower than that of the United States, and we believe that China's deployment of large-scale refining capacity in coastal areas will help to enhance the scale advantage of China's refining capacity, product upgrades, as well as world-class pricing power and trade competitiveness.

Private enterprises enter the refining and chemical sectors to ensure the supply of aromatic raw materials. Unlike the previous petrochemical capacity expansion, this refining capacity expansion to private enterprises, the future to open up the refining-PX-PTA industry chain links. In 2016, China produced about 9.4 million tons of PX and imported 12.3614 million tons, with an apparent demand of 21.7048 million tons and an import dependence of more than 50%. Judging from the recently planned refining capacity, the refining projects led by private enterprises have increased the proportion of aromatics production of the plant without exception.

Ethylene is in short supply for a long time, and the profit is good under the current oil price background. Due to the decline in the growth rate of new fixed asset capital expenditure in the petrochemical industry between 2012 and 2016, while downstream demand grew steadily, new effective capacity could not meet demand. We expect the operating range of oil prices to fluctuate in the range of $50-60/bbl in 2017, and the cash cost of naphtha cracking ethylene in Northeast Asia has a comparative advantage in the world's ethylene cost curve, corresponding to good profitability of ethylene.

The rise of global competitiveness is expected. After years of accumulation, China has accumulated a lot of experience in petrochemical design, equipment, production management and so on. As a consumer hinterland, China is expected to lead a new round of capacity upgrades in the future, increase the autonomy of petrochemical products, and better support downstream related industries.

Investment and recommend. With cash advantage, in the current oil price background, enjoy the petrochemical high business climate, recommend Sinopec, Shanghai Petrochemical. Participate in oil refining and petrochemical projects, open up the refining-PX-PTA link, and bring the target of refining scale and capacity upgrade, recommend Rongsheng Petrochemical, Hengli shares. Based on the liquefied gas trade, arbitrage in the propane-propylene-polypropylene industry chain to recommend Donghua Energy. Overseas with oil and gas resources, through the domestic LNG and crude oil trade links, recommend Zhongtian Energy (10.85-0.55 percent, diagnosis). Future refining project engineering design is expected to benefit, recommend Sinopec refining engineering. Benefit refinery capital expenditure, downstream orders rebounded, recommend Newway shares.