DEEP RESEARCH · CHEMICALS

[Chemicals] Analyst Yoon Jae-sung Report — The Era of Restructuring

Hana Securities Energy & Materials, Yoon Jae-sung — Weekly Monitor: Europe and China are finally pulling supply

Date: 2025-09-07 · Sector report memo · Naver Blog original

0. Bottom line first

Official fact: Refining margin 9.3$/bbl (WoW +0.6$), petrochemicals slightly soft. ECH +4%, a 3-year high. Yoon's Top Picks: S-Oil, KCC, Daehan Yuhwa, Lotte Fine Chemical, Lotte Chemical.

Interpretation: I was already watching KCC and Daehan Yuhwa as candidates to add on a pullback or breakout, so seeing them in the analyst's Top Picks is meaningful. Refining margin recovering plus ECH at a 3-year high signals that pricing power is creeping back into downstream chemicals.

1. Europe — petrochemical restructuring accelerates

Official fact: On 9/4, reports surfaced that ExxonMobil is reviewing sale/shutdown of its UK and Belgium petrochemical operations, driven by high energy costs and intensifying Chinese competition.

Official fact: Ethylene capacity slated for shutdown or sale in Europe over 2024–27 is about 5 million tons/year — roughly 2% of global market share.

Interpretation: When even a major like ExxonMobil throws in the towel, it means European chemicals losses have moved into structurally unrecoverable territory. The language "sale/shutdown under review" is itself the signal.

2. China — September is the inflection point

Official fact: Early September: State Council comprehensive report (first results). Within September: concrete capacity-reduction measures take immediate legal effect once disclosed. Findings will feed the draft of China's 15th Five-Year Plan (2026–30).

Official fact: CTO/MTO units with Max Capa under 600k tons/year and high energy/carbon intensity are likely shutdown targets. New ethylene permits restricted from 2026. In refining, Teapot facilities under 2 million tons/year (40k b/d) are also likely shutdown candidates.

Official fact: CTO/MTO total 7.7 million tons — 13% of China, 3.3% of the world. Chinese refining capacity under 40k b/d totals roughly 840k b/d — 4.3% of China, 0.8% of the world.

Interpretation: The global share looks small, but CTO/MTO and small Teapots are the marginal-margin units that "break the price." Removing them flows directly into NCC and major-refiner margins, so the impact is outsized vs. the headline share.

3. Ethylene — a global 5–7% shutdown scenario

Official fact: Combined Europe + China + Korea ethylene shutdowns are estimated at 5–7% of global market share.

Interpretation: In the chemicals cycle, a 5–7% supply cut is the threshold size that can lift margins from loss-making back above breakeven. Direct positive for NCC-heavy names like Daehan Yuhwa and Lotte Chemical.

4. Polysilicon / Organosilicon restructuring

Official fact: If China realizes a 31% cut in total polysilicon capacity, top-tier players can raise utilization. Daqo's CEO flagged the possibility of substantial earnings improvement from 3Q25. GCL Poly's CEO mentioned the possibility of turning profitable in August–September.

Official fact: Polysilicon equity strength is dragging organosilicon names higher — Hoshine Silicon DoD +8%, Shandong Dongyue +8%. Restructuring expectations are maxed out across China's poly/organo/metal silicon chain.

Interpretation: A 31% cut is large enough to push prices up almost instantly on announcement. The catch is the "if realized" condition, and CEO comments on Aug–Sep break-even should be taken cautiously. Still, for KCC (silicon parent), the external price backdrop is turning favorable.

5. Analyst's conclusion

Interpretation: Refining (S-Oil) + NCC (Daehan Yuhwa, Lotte Chemical) + fine chemicals (Lotte Fine) + silicone/paint (KCC) — a full "restructuring-beneficiary set" in a single basket. Because the trigger is a policy announcement, the September State Council document is the single most important calendar event.