Asia Petrochemical:2018outlook,supply discipline prolonged cycle,non-PE even better

2018another good year for chemicals earnings; initiating Korean
coverage

    The outlook for the petrochemical sector continues to be positive;
Asian chemicalcompanies’ weighted spreads will likely be maintained
despite a high base. Weare bullish based on prolonged peak earnings
driven by supply side discipline,potential further delays or
cancellations in projects and stringent environmentalmeasures disrupting
supply. Hence, the key themes in 2018are: 1) ethylene cyclesoftens but
with limited damage to spreads; 2) non-PE continues to strengthen inthe
absence of naphtha cracker (NCC) additions; and 3) environmental
constraintsboosting the chlor-alkali chain cycle. Thus, we initiate our
Korean coverage withBuy ratings on LG Chem & Kumho Petrochem, and Hold
ratings on Lotte Chem& Hanwha Chem.

永利网址,    Ethylene cycle rolling off but spreads sustain at high level

    We expect PE chain spreads will ease back from their peak but remain
healthy,after a highly profitable 2017. Based on our global ethylene
model, 2018/19Eutilization rate will decline to 89% / 88%, still within
mid-cycle. With the additionalgas-ethane-based supply from the US, we
continue to see risks of delays,outages, and slower ramp-up, and even
Chinese ban on recycled plastics importsto support the cycle. Best
leverage to theme: PTTGC, Lotte Chem, & Chandra Asri.Non-ethylene:
structurally upbeat with synthetic rubber leading the wayTight supply
demand is heading for the non-PE cycle given limited NCC additionsgoing
forward since 67% of 2018E/19E new additions to capacity are
gas-ethanebased,which focus on ethylene. We expect the non-PE
utilization rate to increaseby 1.5% yoy in 2018E while synthetic rubber
is the best product area with +4.3%yoy improvement. In our view, Asia
naphtha crackers with good exposure tonon-PE will enjoy this imminent
upcycle. Best leverage to the theme: LG Chem,Kumho, SPC, & IRPC.