Morgan Stanley: Supply Chain Circularities Emerge — LDPE, LLDPE, PET, Soda Ash, Butadiene Rubber Prices
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Morgan Stanley highlights that the interdependence between energy and chemicals has made supply chains tighter than market expectations. Circular dependencies are pervasive — for instance, coal production relies on ammonium nitrate, which in turn depends on natural gas supply. Asian governments have restricted access to crude oil, propane, and natural gas, affecting chemical value chains. South Korea has restricted naphtha exports, while India has cut import tariffs on numerous petrochemical products to zero.
India's tariff reductions cover anhydrous ammonia, toluene, styrene, VCM, methanol, MEG, PTA, and PVC, among dozens of chemicals, reducing rates from 2.5%–10% to nil through end-June 2026. However, these measures provide only limited relief, as the larger challenge is feedstock availability rather than cost pressure alone.
Polymer prices have risen over 70% on average since pre-conflict levels, with polyesters up 46% and ammonia-based value chains up 38%. Aromatics have climbed 34%. Non-integrated capacities face greater risk, as declining inventories may force additional shutdowns and tighten the global chemical value chain. Asian chemical stocks trade at 0.9x book value, with EBITDA per ton below 2002 trough levels.
With the peak investment cycle behind, capex intensity is expected to decline and integrated naphtha cracker margins should normalize. Morgan Stanley favors integrated olefins and PVC value chains in India, Malaysia, and Thailand, recommending PCHEM, PTTGC, Reliance (RIL), and Indian Oil.