BLUE PAPER – REVISIT
MORGAN ST ANLEY RESEARCH
Global
Vincent Andrews
1
Vincent.Andrews@morganstanley.com
+1 212 761-3293
Charles A. Dan
1
Charles.Dan@morganstanley.com
+1 212 761-4793
1
Ian Bennett
Ian.Bennett@morganstanley.com
+1 212 761-0031
Vinay Jaising
2
Vinay.Jaising@morganstanley.com
+91 22 6118 2252
Rakesh Sethia
2
Rakesh.Sethia@morganstanley.com
+91 22 6118 2253
3
Paul R. Walsh
Paul.R.Walsh@morganstanley.com
+44 (0)20 7425 4182
Peter J. Mackey
3
Peter.Mackey@morganstanley.com
+44 (0)20 7425 4657
3
Christian J. Stiefel
REVISIT
Petrochemicals
Supercycle No Longer the Base Case
Global ethylene utilization of 90% is no longer a high probability in 2014.
Demand continues to lag historical trends, and we do not envision a positive inflection. After two weak years, Chinese data are improving against soft comps, while developed markets’ decelerating demand or outright declines continue. We now forecast peak utilization of ~89% in 2016 vs. our prior forecast of 90% in 2014.
We expect utilization rates to decline thereafter due to increased supply from the US,
China, and the Middle East. Importantly, we do not believe global petrochemicalrelated equities price in a 90%+ utilization.
Christian.Stiefel@morganstanley.com
+44 (0)20 7425 9491
Andy Meng
4
Andy.Meng@morganstanley.com
+852 2239 7689
*See page 2 for all contributors to this report
1 Morgan Stanley & Co. LLC
2 Morgan Stanley India Company Private Limited+
3 Morgan Stanley & Co. International plc+
4 Morgan Stanley Asia Limited+
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Incremental demand should outpace supply in the next three years, increasing the current utilization rate from 86% to 89% in 2016. This should enable high-cost
Asian polyethylene margins to improve off the 2012 trough, though to nowhere near peak levels.
Cost curve position remains the key driver of producer economics. We expect