Strait-ening Up

Research evidence excerpt

Strait-ening Up

Idea

June 28, 2026 07:00 AM GMT

Morgan Stanley Asia (Singapore) Pte.+MAsia – Chemicals | Asia Pacific Mayank Maheshwari

Equity Analyst

Strait-ening Up Mayank.Maheshwari@morganstanley.comMorgan Stanley Asia Limited+ +65 6834-6719

Jack Lu

Petrochemical cracker margins are nearly at mid-cycle in Asia – a EquityJack.Lu@morganstanley.comAnalyst +852 2848-5044

lot faster than the Street is baking in. We think about half of the

Morgan Stanley MUFG Securities Co., Ltd.+

margin bounce is sticky, though the cost inflation-linked push Takato Watabe

will unwind. FCF recovery remains in play as capacity additions EquityTakato.Watabe@morganstanleymufg.comAnalyst +81 3 6836-5436

slow and capex outlook cuts continue.

Morgan Stanley & Co. International plc, Seoul Branch+

Young Suk Shin

Equity AnalystKey Takeaways

Young.Shin@morganstanley.com +82 2 399-4994

Wider availability of unsanctioned crudes should raise the cash cost curve for

Morgan Stanley Asia (Singapore) Pte.+

Chinese private integrated oil-to-chemical players and benefit producers in Asia.

Vivek Rajamani

FCFs for Asian players have started recovering in the past two quarters and Equity Analyst

Vivek.Rajamani@morganstanley.com +65 6834-6740

Street capex estimates have halved for 2026-2028, pointing to a recovery cycle.

Morgan Stanley Asia Limited+

We expect margins to cool off from recent highs but see a path to mid-cycle Kaylee Xu

profitability reappearing in 18-24 months. Equity Analyst

Kaylee.Xu@morganstanley.com +852 2239-1506

Asian petrochemical cracker margins are now very close to mid-cycle levels despite

rising naphtha supply, as evident in declining naphtha costs for most of the last

three weeks.

Over the past year, weak cracker economics have led 10% of olefin capacity to be