Summary of Conference Call on Chemicals Industry Industry Overview - The chemical cycle is entering a phase of potential recovery after experiencing one of the sharpest downcycles in 20 years, with a projected US$50 billion turnaround in assets driven by China's anti-involution and deflating investment cycle [1][2][3] - Investor sentiment towards the commodity chemical cycle is currently the most bearish seen in two decades, with equities priced at 0.5-0.7 times tangible book value, indicating a significant capacity reduction is already factored in [2][5] Key Companies and Ratings - Upgrades were made for several companies: - **PTT Global Chemicals** and **PETRONAS Chemicals** upgraded to Overweight (OW) - **Tata Chemicals** received a double upgrade to OW due to global capacity cutbacks and focus on self-help measures [4][7] - **United Tractors** was lifted to Equal Weight (EW), while **IRPC** remains Underweight (UW) due to high cash costs and a challenging balance sheet [4] Market Dynamics - The current downcycle is characterized by reduced utilization rates, with production outside China at 2016 lows and an average utilization rate of 75%, with some companies experiencing rates as low as 50% [2][3] - The recovery is expected to be driven by increased utilization as companies in the coverage remain lower on the cash cost curve and benefit from good domestic/regional consumption [3][11] Financial Metrics - The EV/EBITDA multiple has been raised to 8.5x for below midcycle 2026 estimates, indicating stable pricing and margins for olefins in 2025, with improvements noted for HDPE/LDPE, PVC, and Paraxylene [5][11] - Industry EBITDA per ton for Asia is approximately 50% below the last downcycle, suggesting limited downside and peak oversupply [5] Supply and Demand Factors - China's anti-involution is expected to slow capacity growth by 25% from 2025 to 2028, which is seen as a positive development to address the supply glut [3] - Permanent closures and reduced utilization outside of China are anticipated to help restore balance in the market [3] Cost Structure and Feedstock Changes - The US shale revolution is positively impacting Asia, with a projected 20-25% reduction in operating costs as US ethane gains a larger share of the feedstock mix [2][22] - Companies are increasingly resorting to cheaper ethane feedstock to tackle lower product spreads, enhancing their competitive position [23][24] Capacity Adjustments - Global petrochemical capacity has seen cutbacks amid industry headwinds and muted profitability, with several companies announcing permanent closures and temporary halts in production [20][21] - The total book value in the coverage could see a re-rating as the cycle turns, with significant contributions from major players like Reliance Industries, Indian Oil Corp, and Tata Chemicals [18] Conclusion - The chemicals industry is poised for a potential recovery, driven by strategic capacity adjustments, improved cost structures, and favorable market dynamics. The focus on self-help measures and the impact of US ethane on operating costs are critical factors to watch in the coming years [1][2][3][4][5]