A global demand recovery is underway. CS economists believe that
global IP will rebound to 2007 levels by 3Q10, implying a rebound of
12% from the low in 1Q09.
■  Expectations of a demand rebound and further capacity delays in the
Middle East have lifted stocks across Asia (especially in Korea and
Thailand). The conditions in 1H09 were underpinned further by record
capacity outages and magnified by restocking demand, as oil
bottomed. These tailwinds are about to turn.
■  Two key Middle East crackers have started. Downstream polymer
capacity growth that had lagged ethylene is catching up. Capacity
growth going forward is not just from the Middle East, but equally from
Asia, where there is greater visibility. Restocking demand is unlikely to
remain forever – China’s imports are well above trend.
■  With aggressive demand assumptions (demand in 4Q09 equal 2007
levels) and assuming above average outages globally, utilisation rates
will fall close to 4Q07 lows by 4Q09, and fall below that of historical
lows by 4Q10. The pain in the sector is not over.
■  We see a second leg down for chemical stocks. P/B multiples have
rebounded ahead of earnings expectations. Stocks tend to perform on
the back of turns in the market’s earnings expectation, which are likely
to disappoint on the downside in 3Q-4Q09. Book profits in FCFC/NanYa,
Honam PTTCH, Thai Oil and PTTAR.