27 Mar 2026 01:00:00 ET │ 35 pages Vi e w p o i n t | Global Chemicals Cracker Middle East disruption pushes Asian spreads higher CITI'S TAKE The closure of the Strait of Hormuz has tightened Asia supply, driving major spread expansion in March. European margins fell given contract timing. April will show whether Asian tightness also boosts Europe, as the data shows that the industrial recovery gains momentum. Biggest spread movers were BD, AA, PC, C2 and TDI in Asia, with BASF's weighted spread rising shar ...

Summary of Key Points from the Conference Call Industry Overview - The chemicals market, specifically focusing on helium, sulfur, and benzene, is currently facing significant volatility due to geopolitical conflicts, supply chain realignments, and changing downstream demand [1][2][3]. Core Insights and Arguments Helium Market - Helium prices have experienced significant spikes, exceeding 50%, due to acute disruptions in the Middle East and Russia, particularly from attacks on Qatari LNG infrastructure and the blockade of the Strait of Hormuz [1][4]. - Approximately one-third of global helium supply is offline, leading to potential downstream disruptions in sectors such as semiconductor production, healthcare, and aerospace [9]. - Air Products (APD) anticipates a ~4% EPS headwind from lower helium prices this year [4]. Sulfur Market - The sulfur market has shifted from surplus to structural scarcity due to the Iran conflict and broader Middle East instability [2]. - North American sulfur prices have reached a 15-year high, with a correction appearing unlikely in the near term [7]. - Iran and Iraq have doubled sulfur consumption over five years, tightening supply/demand balances, impacting industries such as fertilizers and mining [7]. Benzene Market - Despite current oversupply, the escalating conflict in Iran poses a high-volatility risk for benzene markets, which are closely linked to crude oil prices [3]. - Producers are shifting from just-in-time inventory management to just-in-case stockpiling, particularly in construction and automotive sectors [3]. - Benzene prices typically peak a couple of months after moving more than 30% above toluene breakevens, indicating potential future price increases [8]. Company-Specific Insights Air Products (APD) - Price target set at $313, based on a multiple of 22.6x 2027E EPS, with risks including slowing demand and execution failures [10]. Ecovyst (ECVT) - Price target of $12, implying a valuation of 9.1x 2027E EBITDA, with risks including raw material volatility and regulatory hurdles [11]. Huntsman Corp. (HUN) - Price target of $17, equating to 7.8x 2027E EBITDA, with key risks including end-market demand and energy costs [12]. Additional Important Information - The sulfur market's dynamics could favor sentiment on Ecovyst, while benzene volatility may present challenges for Huntsman in the second half of the year [2][3]. - The helium market's acute supply shock is expected to complicate recovery dynamics for several quarters if the conflict persists [9]. This summary encapsulates the critical insights from the conference call, highlighting the current state of the chemicals market and the implications for specific companies within the sector.

Core Insights - Asian governments are implementing extreme measures to manage a fuel shortage caused by high oil prices and the closure of the Strait of Hormuz, with countries like Japan and South Korea heavily reliant on oil imports from the Middle East [1] Group 1: Government Responses - Thailand has mandated civil servants to work from home, increased air-conditioning temperatures, and encouraged wearing short-sleeved shirts to conserve energy, with approximately 95 days of energy reserves remaining [2] - Vietnam is urging businesses to allow remote work to minimize travel, while the Philippines is advocating for a four-day work week and limiting travel to essential functions [3] - Bangladesh has moved the Eid-al-fitr holiday earlier to save fuel, and Pakistan has implemented a four-day work week for government offices and closed schools [3] - India has suspended liquefied petroleum gas shipments to commercial operators to prioritize household supplies, raising concerns among hotels and restaurants about potential closures [3] Group 2: Market Interventions - South Korea plans to introduce a price cap on petroleum products, with 1.7 million barrels of oil per day being withheld due to ongoing conflicts, which poses a significant economic burden [4] - Japan's industry minister has not ruled out using national oil reserves to ensure stable energy supplies [5] - Indonesia is allocating 381.3 trillion rupiah (approximately $22.6 billion) for energy subsidies to maintain affordable fuel and electricity prices [5] Group 3: Additional Measures - Thailand intends to freeze cooking gas prices until May and promote the use of alternative energy sources like biodiesel [6] - Vietnam is considering eliminating tariffs on fuel imports to alleviate the energy crisis [6]

Summary of Global Chemicals Conference Call Industry Overview - The conference call focused on the **Global Chemicals** industry, particularly the impact of China's anti-involution measures and global supply-demand dynamics in the chemical sector [1][3][10]. Key Themes and Insights 1. **Global Supply Growth Projections**: - The compound annual growth rate (CAGR) for global supply from 2024 to 2028 is expected to be lower than from 2020 to 2024, with estimates of **3.1%** in a bear case (no Chinese closures) and **2.0%** in a bull case (all capacities over 20 years old closed) [1][21][52]. - The previous CAGR from 2020 to 2024 was **3.9%**, indicating a more disciplined supply growth moving forward [21][52]. 2. **Impact of China's Anti-Involution Measures**: - China's government is focusing on closing older capacities (over 20 years) to address oversupply issues in the refining and chemical markets [10][12]. - The anticipated recovery in the chemical sector is expected to be more meaningful from **mid-2026** onwards, contingent on the execution of these measures [13][23]. 3. **Investor Interest Reignited**: - The potential for anti-involution measures in China, combined with overseas chemical players closing plants due to high production costs, has rekindled investor interest in the chemical sector [3][10]. 4. **Product-Specific Capacity Growth**: - Capacity CAGRs for major products typically range from **1.0% to 6.4%** (without Chinese closures) and **0.8% to 4.0%** (with closures) [8][54]. - Specific products like ethylene and polyethylene are expected to see significant capacity additions in the upcoming years [65]. 5. **Profitability Trends**: - Major A-share chemical stocks have rallied approximately **10%** since the announcement of anti-involution measures on **July 18, 2025** [17]. - Despite a decline in profitability for major A-share companies in the first half of 2025, a seasonal recovery is expected in the second half [19][20]. Stock Recommendations - **China**: - Upgrade for **Wanhua** to Overweight (OW) with a price target of **Rmb80** due to expected benefits from volume growth and product spread expansion [25]. - Upgrade for **Rongsheng** to Equal-weight (EW) with a price target of **Rmb10.6**, anticipating quarterly earnings improvement [26]. - **Europe**: - Top pick is **Akzo**, with additional recommendations for **Syensqo**, **BASF**, and **AKE** [27][28]. - **India and Southeast Asia**: - Favorable outlook for **PTTGC** and **Petronas Chemicals** due to potential upside from China's anti-involution efforts [31]. Risks and Challenges - Potential risks include ineffective supply-side reforms, worsening demand due to trade tensions, and unfavorable inventory cycles [33]. Conclusion - The global chemicals industry is poised for a more disciplined growth phase, influenced by China's anti-involution measures and external market dynamics. The focus on closing older capacities and the potential for improved profitability in the coming years present both opportunities and risks for investors in this sector [1][10][20].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Global Chemicals Cracker** industry, focusing on the dynamics of chemical demand and supply, particularly in relation to tariffs and manufacturing activity [1][2]. Core Insights and Arguments - **Chemical Demand Risks**: There is a potential downside to manufacturing as more supply is being shut down. The reversal of pre-emptive inventory builds due to tariffs could pose unexpected risks to chemical demand [1][2]. - **Supply Rationalization**: Despite announcements of supply rationalization, it appears insufficient to rebalance markets. The average spread in August remained flat, with a notable increase in EU TDI prices offset by declines in Asia [1][2]. - **Capacity Reductions**: Ten Korean companies are set to reduce naphtha cracking capacity by approximately 2.7-3.7 million tons, representing 18-25% of total capacity. Korea accounts for 6% of global ethylene/propylene capacity [2]. - **China's Supply Dynamics**: China's Ministry of Industry and Information Technology (MIIT) may phase out smaller refining and chemical facilities, but older crackers owned by Sinopec and PetroChina are expected to see upgrades, leading to net supply additions rather than closures [2]. - **Global Economic Indicators**: Citi's global economic surprise index increased in July but has since fallen in August, primarily due to China. Industrial production in China expanded by 6% YoY in July, but austerity measures are beginning to impact demand [2]. Margin and Performance Analysis - **Margin Trends**: The average spread was stable month-over-month in August, with lower spreads in Asia offset by TDI in Europe. BASF's average weighted spread decreased by approximately 1% month-over-month, indicating a potential EBITDA of around €7.3 billion, which is about 3% below consensus [3][10]. - **Sector Performance**: The chemical sector's weak performance in Q2 suggests that chemical demand has not significantly benefited from pre-buying. The outlook for September is critical to assess demand trends for the remainder of 2025 [2][3]. Company-Specific Developments - **BASF**: The company reported a marginal decline in its weighted average spread for chemicals and materials, translating to a negative net pricing impact of approximately €0.1 billion for the second half of the year [10]. - **Arkema**: European acrylic acid margins were flat month-over-month, but margins in China dropped by about 22% due to lower prices. Arkema is viewed positively for its long-term earnings resilience [10]. - **Clariant**: The company is favored for its defensive portfolio, which is less reliant on commodity pricing and more focused on higher quality end markets [10]. - **Dow Chemical**: Dow announced a 50% cut to its dividend due to a prolonged soft commodity cycle and missed Q2 earnings expectations [15]. - **LG Chem**: The company is focusing on high-value-added products amid industry oversupply, with a realistic outlook on cathode shipment guidance [14]. Additional Important Insights - **Market Sentiment**: The overall sentiment in the chemical industry remains cautious, with expectations of continued low margin conditions for the rest of the year [11][15]. - **Investment Recommendations**: Within diversified chemicals, companies such as AKE, CLN, EVK in Europe, and LG Chem, PChem, and Kumho in Asia are highlighted as favorable investment opportunities [4][10]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the global chemicals cracker industry.