中国供应问题

Restricted - External U.S. ChemicalsPOSITIVEU.S. ChemicalsMichael Leithead, CFA+1 212 526 0018michael.leithead@barclays.comBCI, USNick Igneri+1 212 526 1632nicholas.igneri@barclays.comBCI, USAaron Acquah+1 212 526 7519aaronj.acquah@barclays.comBCI, US capacity in key product chains, and have already been running at sub-optimal utilization thepast few years. Incidentally, this cycle evolution will lead to Europe becoming structurally morereliant on imported upstream chemicals as the production base gets hollowed out.US Chemical assets are still profitable at cycle troughs (shale gas cost advantage), but webelieve most US commodity companies have not been properly capitalized (i.e., debtbalances, dividend policy) for this level of ongoing weakness. If our assumption of another1-2 years of oversupply is correct, we would expect further asset sales, restructuringactions, dividend cuts, and debt downgrades.A litany of chemical executives have describedthe past 2-3 years as "the longest trough of their career" and tried to assure investors that "wecan't stay at these levels forever". While looking at the past 30-40 years can be instructive, wethink most in the industry underappreciated the paradigmshiftof Chinese supply, and wronglyassumed Chinese production would react economically rationally (instead of "state rationally");i.e. supply would cut back in response weak margins like a Western private company would /has over the past number of cycles. Additionally, we think the growing structural supplychallenges coming from China that started in 2018/19 were obfuscated by Covid in 2020 and the2021/22 extreme fly-up in earnings (demand snap back + outsized industry outages).We believe this inaccurate framework led to overly-ambitious capital structures and allocationpolicies, which companies are needing to re-visit as "trough" EBITDA and cash flow is provinglower and longer than contemplated. Management teams are being aggressive in restructuringactivities, however, we believe further actions will be needed to appropriately weather theextended trough. The likelihood of further actions (i.e., potential dividend cuts, growing debtbalances) keeps equity investors on the sidelines today, evenaftersignificant LTM stockunderperformance, in our view.We relatively prefer Westlake as our only commoditychemical OW (with >$1bn mkt cap) as we view it having the most conservative capitalstructure, best positioning it to navigate the current cycle evolution.Will the cycle eventually turn? Yes. What needs to happen to drive the next up cycle, in ourview? A change in Chinese supply behavior and/or a material economic acceleration (likelyboosted by inventory re-stocking). We are skeptical on the impact of anti-dumping duties /tariffs;unplanned supply outages can always provide upside tail risk.With significantopacity in the domestic Chinese market, we view China's net exports as the "canary in the coalmine" for a cycle inflection. A pullback in Chinese net exports (or an increase in China's netimports) likely signals a cutback in Chinese production and/or a pick-up in Chinese domesticdemand, either of which would help re-balance the ex-China market. A number of regions haveinitiated anti-dumping investigations /tariffsto protect domestic markets, but we believe thetangible benefits thus far have been limited, as commodities are naturally fungible and Chineseexported product is simply finding alternative destinations.We continue to reiterate our downstream / specialty chemical equity preference in thespace, which we laid out in greater detail in our 2025 sector Outlook.2 The growth of China and its impact on the globalchemical marketThe emergence of the Chinese economy is likely one of the two defining factors of globalchemical markets over the past 20+ years (the US shale gas renaissance being the other).Demand for chemical products tends to correlated with consumer & industrial production, andChina's rapid GDP growth, industrial build out, and middle-class emergence powered globalchemical consumption. China today makes up ~40-50% of global chemical demand.As the China economy has grown, so too has China's chemical production base. Once primarilyreliant on imports, China has and continues to build out its supply footprint, with China nowrepresenting nearly half of global chemical capacity, up from ~15% two decades ago (see Figure1 below). As the China domestic economy has decelerated in recent years, China's net exportposition of chemicals have grown, providing increased price competitiveness and lowermargins for international producers in recent years.FIGURE 1. China Chemical Capacity in Key Product Chains (2005 vs. Today)Source: Barclays Research; CMA; IHS CEHFIGURE 2. China's Net Export Position Has Grown in Most Chemical Chains-10%-5%0%5%10%15%20%25%2005CurrentChina Net Export (Import) as % of World CapacitySource: Barclays Research; CMA; IHS CEH 3 Impact on US Commodity Chemical NamesSince the advent of cheap shale gas in