ASIACHEMICALS：CAUTIOUSONAROMATICSONHIGHERCAPEX;BUYPTTGCSELLNANYA1122

1、target 7,000 november 16, 2012 asia: chemicals equity research cautious on aromatics on higher capex; buy pttgc, sell nanya bearish on para-xylene (p-x) given the new capex cycle we turn cautious on aromatics, primarily p-x, and expect a softening in the rating and target prices summary 13-nov-12 ra

2、ting price strength seen over the last few years as we enter the new industry asia chemicals priceprice (new) capex cycle in 2013-2015. this is underpinned by our expectation of the p- x industry set to see historically high levels of capacity additions during 2013-2015 (4mn/8mn/2mn ton each in 13/1

3、4/15e), driven mostly by the korean refiners (accounting for one third of the total capex according to our estimates). as a result, we expect margins to decline, although ongoing downstream pta additions are likely to provide some support. ptt global chemical taiwan synthetic rubber corporation lg c

4、hem kumho petro chemical co. formosa petrochemical corp. formosa chemicals gradual pick-up in 2013e we maintain our cautious view on the ethylene chain. however, despite research estimates. turning cautious on p-x on capex cycle weak near term momentum with macro uncertainties continuing to impact (

5、000ton/year) 8,000 koreachinaindiamiddleeastothers end demand, we expect some improvement in the macro backdrop in 2013 southkorealeadsthemajorpx capexprojectsduring2013e15e; which could improve the industry outlook, although we see more visible recovery in 2h. nevertheless, we maintain our construc

6、tive outlook in the 6,000 5,000 1,046 1,100 theincrementaltotalcapacityover 5milliontons,nearlydoublingthe nationscurrentcapacity medium to long term as we forecast moderate margin improvement on the back of limited supply additions until 2016 (see our previous research: 4,000 3,000 220 1,800 1,450

7、shale wave and implications for asian petrochemicals, july 11, 2012). 2,000 244 750 90 700 9001,400 3,350 400 800 1,000 maintain long term constructive view on rubber (specially butadiene); expect faster recovery given demand improvement 975 2011 950 60 2012e 830 2013e 2014e 1,000 2015e 1,350 2016e

8、while the rubber chain continues to suffer from near term weakness due to the macro backdrop, we believe it has the potential to post stronger earnings recovery upon a pick up in end demand for tires. also, we expect asian rubber makers to start making s-sbr capacity additions from 2013, which could

9、 impact volume and margin improvement in the long term. hence, we remain constructive on butadiene in the long term. buy pttgc, tsrc; sell hanwha and nanya plastics (on cl) we maintain our buy rating on pttgc and tsrc on attractive valuations and maintain our sell ratings on hanwha chemical and nany

10、a plastics (on cl) on their unfavorable product mixes. we lower 12 month target prices for our chemicals coverage by 7% on average and revise earnings by -6%/- 13%/+1% on average for 12e/13e/14e on the back of revisions in our key chemical margin assumptions. source: company data, pci, factiva, gold

11、man sachs research estimates related research asia pacific: energy: oil - refining: robust refining into 2015e; supply side surprises likely to continue nov 16, 2012 asia chemicals: the next decade (part 1): shale wave and implications for asian petrochemicals july 11, 2012 key risks positive/negati

12、ve surprises on capacity additions, higher than expected global demand. rosa kim +82(2)3788-1722 goldman sachs (asia) l.l.c., seoul branch tommy wong +886(2)2730-4194 goldman sachs (asia) l.l.c., taipei branch patrick tiah, cfa +65-6889-2468 goldman sachs (singapore) pte nilesh banerjee +91(22)6616-

13、9045 goldman sachs india spl the goldman sachs group, inc. goldman sachs does and seeks to do business with companies covered in its research reports. as a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors shou

14、ld consider this report as only a single factor in making their investment decision. for reg ac certification and other important disclosures, see the disclosure appendix, or go to analysts employed by non- us affiliates are not registered/qualified as research analysts with finra in the u.s. global

15、 investment research 3 6 7 9 11 14 19 2 november 16, 2012 table of contents executive summary: expect gradual pick up in chemicals; aromatics to soften on new capex cycle weak margins and end demand, we see inflection in 2h13 ethylene: near term still challenging, gradual improvement likely polyeste

16、r: weak p-x outlook on industry capex cycle rubber: longer term positives remain, but near term demand weak key risks to our view implications for our chemical coverage appendix: chemical product flow chart disclosure appendix asia: chemicals 13 20 the prices in the body of this report are as of the

17、 market close of november 13, 2012, unless mentioned otherwise. exhibit 1: asia regional chemical peer valuation comparison market pirce as of nov 13, 2012 potential stocktargetmarket capupside/pricingp/e (x)ev/ebitda (x)p/b (x)roe companytickerratingprice(us$mn)downside currency 2012e 2013e 2014e20

18、12e 2013e 2014e2012e 2013e 2014e2012e 2013e2014e korea chemicals lg chem kumho petrochemical cheil ind. hanwha chemical 051910.ks 011780.ks 001300.ks 009830.ks neutral neutral neutral sell 350,000 120,000 100,000 17,000 19,064 2,967 4,172 2,236 16% 13% 15% -2% krw krw krw krw 12.2 17.7 17.7 18.8 10.

19、8 9.8 12.6 9.8 9.9 7.7 10.9 7.1 7.2 11.5 9.3 13.4 6.3 6.8 8.0 10.3 5.9 5.4 6.9 8.9 1.8 2.1 1.3 0.6 1.6 1.8 1.2 0.6 1.4 1.5 1.1 0.5 16% 13% 8% 3% 16% 20% 10% 6% 15% 22% 11% 8% average16.610.78.910.37.86.81.51.31.110%13%14% taiwan taiwan synthetic rubber corporation formosa chemicals aromatics to soft

20、en on new capex cycle we forecast a gradual pick up in overall petchem (olefins) driven by demand recovery in 2013 overall, we expect broad olefin products to post year on year growth in 2013 given its low base as well as expectations of a demand improvement. we also generally witness some inventory

21、 buildup for petrochemical products in the run up to the chinese lunar new year which could be mildly positive for the sector. 4q12 earnings momentum remains muted: we note a lack of near term earnings catalysts for the petrochemical sector, especially olefin products such as ethylene chains. we not

22、e that meaningful recovery may be skewed to 2h13. pecking order of product chain based on our preference in the medium to long term: butadiene p-x, ethylene pvc, pta. maintain medium term constructive outlook on the ethylene chain given limited capacity additions until 2016. however, we anticipate c

23、apacity addition initiatives from the us light feedstock based crackers post 2016. we turn bearish on aromatics due to the start of the new capex cycle we turn cautious on p-x from our previously positive view, due to the start of the new capex cycle from 2h13. we expect to see historically high lev

24、els (compared with the last 5 years) of planned capacity additions for p-x during 2013e-15e (4mn/8mn/2mn tons each for 13e/14e/15e), outstripping the expected pta additions particularly in 2014e, by nearly 3mn tons. we expect pta net additions to be 12mn/5mn tons for 13e/14e. although there could be

25、 some support for p-x margins in 1h13 on the back of still aggressive capacity additions from the pta makers, we see downside risks to the currently strong p-x margins given the bulky capacity additions. we also tone down on meg from our previously constructive stance given the planned capex additio

26、ns (including early initiatives in coal based feedstock plants such as dmo and mto project line-ups). we are also bearish on downstream pta on oversupply and the weak demand situation, which we expect to continue at least till 2014-15. we are positive on rubber chain (butadiene, synthetic rubber) in

27、 the long term we are positive on rubber chain in the long term on the back of our constructive outlook on tire demand in the longer run. while butadiene remains volatile and continues to be impacted by near term weakness, we believe that the structural tightness from rising light feedstock usage in

28、 the us will sustain medium to long term upward trend for butadiene prices. revising estimates/target prices: lower tps by 7% on average we lower 12-month target prices for our coverage by 7% on average and revise earnings by -6%/-13%/+1% on average for 12e/13e/14e on the back of revisions in key ch

29、emical margins (exhibit 5) in order to reflect new demand supply balance for relevant chains as well as ytd performance. we also introduce 2015e eps for lg chem (w30,962), hanwha chemical (w2650), kumho petrochemical (w17,564), tsrc (nt$6.95), formosa petrochemical (nt$3.11), formosa plastics (nt$4.

30、31), formosa chemicals risks from mto projects in china appear relatively low for now global ethylene net capacity addition outlook (000tons) 12,000 doubtfuladditionsfromchinas plannedmtoprojectsappear economicallylessrealistic,yetarisk 10,000 middleeastandasia capacitydominatesthe whilenorthamerica

31、 significantlyincreasesexposure 8,000newadditionsin2010by2017withtheannounced newethanecrackeradditions 6,000 4,000 2,000 20052006200720082009201020112012e2013e2014e2015e2016e2017e (2,000) interimnewadditionsappear choppybutrelativelybenign (4,000) northamerica europemiddleeast asiaothersdoubtfuladd

32、itions(mtoprojects) source: company data, icis, platts, cmai, factiva, reuters, ihs, goldman sachs research estimates goldman sachs global investment research 9 november 16, 2012 exhibit 17: expect a gradual increase in operating rates until 2016e on demand improvement global ethylene demand supply

33、outlook asia: chemicals exhibit 18: supported by limited net capacity additions before ethane cracker launch plans by the us global ethylene net demand and supply addition outlook 200,000 180,000 globalethylenecapacity(000tons,lhs) globalethylenedemand(000tons,lhs) globalethylenoperatingrate(%,rhs)

34、92% 12,000 10,000 netethylenecapacityaddition(000tons,lhs) netethylenedemandaddition(000tons,lhs) globaloperatingrate(%,rhs) 92% 160,000 90% 8,000 90% 140,000 120,000 88% 86% 6,000 4,000 88% 86% 100,000 80,000 84% 2,000 84% 60,000 82% 2006200720082009201020112012e2013e2014e2015e2016e2017e 40,000 (2,

35、000) 82% 20,000 80% 78% (4,000) (6,000) 80% 2006200720082009201020112012e2013e2014e2015e2016e2017e (8,000)78% source: company data, icis, platts, factiva, reuters, ihs, goldman sachs research estimates source: company data, icis, platts, factiva, reuters, ihs, goldman sachs research estimates polyes

36、ter: weak p-x outlook on industry capex cycle p-x (para-xylene) likely to soften after recent margin strength supply induced down-cycle from 2h13 we expect to witness a supply induced p-x down-cycle after more than two years of strength, as we approach another round of capex cycle from 2h13 which is

37、 likely to gain steam in 2014-2015. we expect south korean refiners to lead the capex cycle mostly through joint ventures with japanese entities. we expect to see nearly 2.4mn tons coming from sk innovation (2014, jv with jx holdings, and sk incheon btx project), 800k tons from hyundai oil bank (jv

38、with japans cosmo oil in 2013e) and potentially 1 mn ton from gs caltex (50% owned by gs energy) in jv with japanese peers (showa shell and taiyo oil) in 2015, although this is yet to be confirmed. outstanding pta capacity additions in 2013 to provide some support. while we expect to see some suppor

39、t from downstream pta capacity additions, upcoming large p-x capacity additions could pose further downside risk beyond 2h13. in addition to the p-x facilities built out of korea, the chinese planned capacity will also account for 21% of the total net addition, or 3mn tons during the period (2013-20

40、15). also, unlike some of the previous p-x facilities that were built in landlocked areas of china, for e.g., the urumqi unit in 2010-2011 that had trouble with logistics, many of the newly planned facilities will be located in the coastal areas of the mainland china. goldman sachs global investment

41、 research 10 november 16, 2012 exhibit 19: we expect historically high levels of capacity additions for p-x during 2013-15, led by korea annual p-x new capacity addition outlook asia: chemicals exhibit 20: p-x to see a drop in industry operating rates especially in 2014 as the demand supply gap wide

42、ns further p-x demand supply outlook (000ton/year) 8,000 koreachinaindiamiddleeastothers 60,000 wewillstarttoseesofteningof 90% thepxmarginswiththenew 7,000 southkorealeadsthemajorpx capexprojectsduring2013e15e; 50,000 capexcycleduring2013 85% 1,046 theincrementaltotalcapacityover 6,000 5,000 1,100

43、5milliontons,nearlydoublingthe nationscurrentcapacity 40,000 30,000 80% 4,000 3,000 90 220 1,800 1,450 20,000 75% 2,000 244 750 700 9001,400 3,350 400 800 10,000 70% 1,000 975 950 830 1,000 1,350 65% 60 200720082009201020112012e2013e2014e2015e 20112012e2013e2014e2015e2016e pxsupply(lhs,000tons)pxdem

44、and(lhs,000tons)operatingrates(%,rhs) source: company data, factiva, reuters, goldman sachs research estimatessource: company data, factiva, reuters, goldman sachs research estimates high capex continues to weigh on pta (purified terephthalic acid) we continue to see challenges for pta producers as

45、we enter 2013. although visibility on capacity additions remains low, based on our tracking, we forecast newly planned capacity additions for pta at 12 mn tons in 2013, and 5 mn tons in 2014. many of the new pta projects are progressing faster than expected and could potentially be completed a few q

46、uarters earlier than expected. this suggests better than expected execution from the chinese makers, especially going into 2013e, despite the difficult operating environment and low end demand from polyester producers. limited downside for meg (mono-ethylene glycol), sharp recovery in 2013 unlikely

47、while meg has shown a weak performance ytd due to factors such as high inventory levels from us shipments, higher middle east meg operating rates, weak garment and anti-freeze demand, we are unlikely to see any notable pick up due to the line-up of new capacity from 2013e coinciding with the capex c

48、ycle of other upstream feedstocks like p-x. however, unlike the markets concerns on impact from the potential ramp up of meg facilities from unconventional coal based mto projects, we think such units will take a longer time to commercially hit the markets. goldman sachs global investment research 1

49、1 november 16, 2012 exhibit 21: pta oversupply to continue pta demand supply outlook asia: chemicals exhibit 22: meg likely to moderately soften due to capex, but some of the coal based projects may see delay meg demand supply outlook 90,000 ptasupply(lhs,000tons) operatingrates(%,rhs) ptademand(lhs

50、,000tons) 95.0% 40,000 megnameplatecapacity(lhs,000tons) operatingrate(%,rhs) megdemand(lhs,000tons) 89.0% 88.0% 80,00090.0% 35,000 87.0% 70,000 60,000 50,000 85.0% 80.0% 75.0% 30,000 25,000 86.0% 85.0% 84.0% 20,000 40,00070.0% 83.0% 30,000 20,000 65.0% 60.0% 15,000 10,000 82.0% 81.0% 80.0% 10,00055

51、.0%5,000 79.0% 200720082009201020112012e2013e2014e2015e 50.0% 2009201020112012e2013e2014e2015e 78.0% source: company data, factiva, reuters, goldman sachs research estimatessource: company data, oucc, goldman sachs research estimates rubber: longer term positives remain, but near term demand weak bu

52、tadiene: near term demand volatility, but we maintain our long term constructive outlook on globally higher light feedstock usage we continue to see severe volatility in butadiene prices (exhibit 25) owing to weak global demand leading to increased inflow of arbitrage cargoes from europe. we expect

53、limited demand increase in the near term, and bd prices to be capped at low us$2000/ton level. nevertheless, we expect butadiene to see faster than industry average recovery once end demand starts improving, which we anticipate from 2h13. we expect prices to recover in 2013, averaging us$2,500/ton,

54、to us$2,700/ton and us$2,800/ton in 2014e and 2015e. our long term positive view is in tact, with increasing light feedstock usage in the us crackers, which we expect to rise further after 2016, as well as marginal feedstock conversion to lpg in the meantime among some of the asian naphtha crackers.

55、 unconventional on-purpose projects to ease the debottleneck through technologies such as butane dehydrogenation are still in progress and pose a long term downside risk to prices. however, we think it will take more time to commercialize meaningful volumes as higher levels of butadiene prices are r

56、equired in order to be economically sustainable. we expect mixed c4 to continue to be a meaningful earnings driver for asian naphtha crackers in the meantime. synthetic rubber: long term tire demand a positive but near term feedstock volatility impairs earnings visibility we continue to see non-inte

57、grated, commodity grade producers being hit by the negative impact from feedstock price (butadiene etc) volatility as well as the continuing weak tire demand in the emerging markets, preventing rubber makers from executing substantial price hikes. rubber margin levels this year, as in the case of ku

58、mho the goldman sachs global investment research 12 november 16, 2012asia: chemicals worlds largest synthetic rubber producer, have come down to a level even lower than that seen in 2010. nevertheless, we forecast a more meaningful recovery for synthetic rubber sales post 2q13, driven by the low bas

59、e in 2012 as well as more solid end demand than for other petrochemical end markets in the medium to longer term. in addition, we expect to see more initiatives for both volume growth and margin expansion by the key asian synthetic rubber producers from 2013, via s-sbr capacity additions (exhibit 23). for example, kumho petrochemicals, will add 60,000 tons of s- sbr at the end of 2012, more than doubling its existing capacity to cope with the new labeling system launch in europe. although earnings impact could take some time, we expect this to drive volume growth and margin expansion in th