Oil Markets Global

July 15, 2013
BLUE PAPER – REVISIT

MORGAN ST ANLEY RESEARCH

Global
Vincent Andrews

1

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Charles A. Dan

1

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1

Ian Bennett

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Vinay Jaising

2

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Rakesh Sethia

2

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3

Paul R. Walsh

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Peter J. Mackey

3

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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.

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Andy Meng

4

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*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+

Read the original report

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