Core Viewpoint - LG Chem and GS Caltex are negotiating the integration of LG Chem's steam cracking facility in Yeosu, South Korea, as part of a broader petrochemical industry restructuring plan initiated by the South Korean government [1] Group 1: Company Developments - LG Chem is considering selling its Yeosu cracking facility to GS Caltex and establishing a joint venture for its operation, contingent on reaching an agreement on valuation [1] - GS Caltex is a refining joint venture owned equally by GS Energy and Chevron, which indicates a strong backing for the proposed integration [1] Group 2: Industry Context - The South Korean government has agreed to reduce ethylene production capacity by 2.7 to 3.7 million tons per year, equivalent to shutting down 3 to 4 cracking facilities, aiming for a 25% overall reduction in national ethylene output [1] - Currently, South Korea's total ethylene capacity is approximately 13 million tons per year, primarily distributed across the Yeosu, Daesan, and Ulsan bases [1] - LG Chem has a total ethylene capacity of 3.38 million tons per year, with its No. 2 naphtha cracking facility in Yeosu likely to be shut down as part of this integration [1] - GS Caltex operates a 900,000 tons per year mixed feed cracking facility in Yeosu, which is considered more competitive due to its flexibility in processing various feedstocks [1]

1. Report Industry Investment Rating No information provided regarding the report industry investment rating. 2. Core Views of the Report - In the context of concerns about the reduction of production capacity and restructuring in the South Korean petrochemical industry, the chemical sector rose significantly on Wednesday afternoon. If the restructuring, reduction, or suspension of production in the South Korean petrochemical industry affects PX, the impact will be relatively large, and currently, the impact is concentrated on naphtha cracking [1]. - The cost - side is affected by the meeting between the leaders of the US and Russia, and the negotiation situation is good but no agreement has been reached. Attention should be paid to the US - Ukraine summit this week. The PX balance sheet has changed from destocking to a loose balance, and the fundamentals have weakened month - on - month. The floating price of near - month PX has weakened, but PX is still in a low - inventory state. The demand side of PTA has passed the most pessimistic period, and the supply - demand situation has improved in the short term due to PTA maintenance, but the price is suppressed by the mainstream suppliers' shipments [2]. - The polyester operating rate is 89.4% (a month - on - month increase of 0.6%). The most pessimistic period of the current off - season for demand has passed, and there are signs of improvement in local orders. The load of weaving and texturing has rebounded, and the sales of filament factories have increased. It is expected that the polyester load will continue to stabilize and rise in the short term [3]. - For the single - side strategy, PX/PTA/PF/PR are rated as neutral. For the cross - variety strategy, short the PTA processing fee when it is high and long the PR processing fee when it is low. There is no cross - period strategy [4][5]. 3. Summary by Relevant Catalog 3.1 Price and Basis - The charts include the TA main contract, basis, and inter - period spread trends; PX main contract trends, basis, and inter - period spread; PTA East China spot basis; and short - fiber 1.56D*38mm semi - bright natural white basis [9][10][12] 3.2 Upstream Profits and Spreads - The charts cover PX processing fee PXN (PX China CFR - naphtha Japan CFR), PTA spot processing fee, South Korean xylene isomerization profit, and South Korean STDP selective disproportionation profit [18][21] 3.3 International Spreads and Import - Export Profits - The charts involve the toluene US - Asia spread (FOB US Gulf - FOB South Korea), toluene South Korea FOB - Japan naphtha CFR, and PTA export profit [26][28] 3.4 Upstream PX and PTA Start - up - The charts show the operating rates of PTA in China, South Korea, and Taiwan, as well as the operating rates of PX in China and Asia [29][32][34] 3.5 Social Inventory and Warehouse Receipts - The charts display the weekly social inventory of PTA, monthly social inventory of PX, total PTA warehouse receipts + forecast volume, PTA warehouse receipt inventory, PX warehouse receipt inventory, and PF warehouse receipt inventory [37][40][41] 3.6 Downstream Polyester Load - The charts include the sales of filaments and short - fibers, polyester load, direct - spun filament load, polyester staple fiber load, polyester bottle - chip load, filament factory inventory days, Jiangsu and Zhejiang loom operating rate, Jiangsu and Zhejiang texturing machine operating rate, Jiangsu and Zhejiang dyeing operating rate, and filament profits [49][51][60] 3.7 PF Detailed Data - The charts involve polyester staple fiber load, polyester staple fiber factory equity inventory days, 1.4D physical inventory, 1.4D equity inventory, recycled cotton - type staple fiber load, difference between original and recycled fibers, pure polyester yarn operating rate, pure polyester yarn production profit, polyester - cotton yarn operating rate, and polyester - cotton yarn processing fee [73][82][84] 3.8 PR Fundamental Detailed Data - The charts cover polyester bottle - chip load, bottle - chip factory inventory days, bottle - chip spot processing fee, bottle - chip export processing fee, bottle - chip export profit, price difference between East China water bottle chips and recycled 3A - grade white bottle chips, bottle - chip inter - month spread (next month - base month), and bottle - chip inter - two - month spread (two months later - base month) [91][93][101]

Core Insights - The South Korean government is set to announce a restructuring plan for the petrochemical industry, which is currently in a "severe" situation [1] - The restructuring is expected to draw lessons from the shipbuilding industry's past experiences, where companies had to liquidate assets and streamline operations due to a sharp decline in orders [1] - The current operating rate of the South Korean petrochemical industry is only 80%, indicating about 20% excess capacity, which has led to a significant drop in profit margins [1] Industry Overview - The South Korean petrochemical sector has faced continuous oversupply due to the addition of new capacities over the past decade, resulting in declining profitability [1] - Demand for petrochemicals in South Korea has been weak for the past three to four years [1] - The last major restructuring in the petrochemical industry occurred during the 1999 Asian financial crisis, which led to the establishment of YNCC [1] Company Developments - YNCC is under financial pressure with an 180 billion KRW loan due at the end of August, prompting discussions about its role in the industry's restructuring [1] - DL Holdings has announced that its subsidiary, DL Chemical, will provide a 150 billion KRW loan to YNCC, which may serve as a catalyst for broader industry restructuring [1] - Other companies, such as HD Hyundai, are also considering asset restructuring, including a potential acquisition of Lotte Chemical's naphtha cracking facility [2]