Recovery in the polyester sector is
unfolding similar to our expectation.
YTD07 aromatics margin 60% higher
than 10 yr avg, close to historical peak
􀀗 Polyester margins will take the baton in
2008 – HSBC long-term polyester
margin assumption is USD280/ton, 33%
higher than the market
􀀗 We favour downstream polyester on
margin upside. Upstream aromatics
margins to remain strong. Polyester
sector offers 33% return. Top pick: NYP
Polyester to upstage aromatics in 2008
We expect polyester margins to rise another 55% by 2010e,
largely driven by burgeoning demand from China and India,
and accompanied by slowing capacity addition and low
inventory. Our supply/demand model suggests a 2007-2009e
Asian demand CAGR of 10.5%, outpacing a 3% capacity
CAGR for the period.
Catalysts emerging to drive margins higher
We identify three catalysts for higher margins in 2008: 1)
abolition of EU quota on China textile exports from early
2008 will boost polyester demand; 2) rising cotton prices
encourage switch to polyester; 3) rising domestic
consumption will increasingly contribute to demand,
particularly during the 2008 Olympic Games in Beijing.
Not yet in the price
Our long-term polyester margin assumption of USD280/ton
is 33% higher than the market’s USD210/ton assumption.
This implies sector valuation upside of 33%. We think pure
polyester players could provide higher leverage; we suggest
investors go to downstream.

Contents

Recovery full speed ahead 6
Valuation 12
What’s new? 15
Catalysts emerging 16
Investor concerns 20
Polyester demand analysis 22
Polyester gains on margin
redistribution 30
Company profiles 42
Nan Ya Plastics (NYP) 43
Formosa Chemical and Fiber (FCFC) 51
Thai Aromatics (ATC) 58
Sinopec Yizheng Chemical & Fibre (YCF) 65
Honam Petrochemical (HPC) 71
Appendix 1: Chemicals flow chart 77
Appendix 2: Who makes what? 79
Appendix 3: Glossary of terms 80
Disclosure appendix 89
Disclaimer 94