Korean NBL/SBR margins rise to five-year highs

Overview

This report focuses on the Korean chemicals and synthetic rubber chain. Its core view is that post-Middle East war naphtha supply shortages, tightness in LPG/naphtha-related feedstocks, and restocking demand from Malaysian medical glove producers have jointly driven tight NBL supply, along with higher prices and margins. The report believes that although sales volumes for some companies may decline, improved prices and margins are sufficient to support quarter-over-quarter growth in 2Q26 chemicals operating profit for Kumho Petrochemical and LG Chem.

Core views

The core views include: first, Korean NBL prices continued to rise in May, with the April-May average reaching a five-year high; second, NBL margins expanded to $916/t and exceeded SBR, showing that tight supply and demand are being transmitted into profits; third, butadiene prices fell 27% in May, but NBL and SBR prices remained relatively firm, indicating continued tightness at the end-product level; fourth, global capacity additions are limited, and NBL supply-demand is still expected to remain healthy through 2028; fifth, at the stock level, Kumho Petrochemical and LG Chem are direct beneficiaries, while Nan Ya Plastics remains the Asia Pacific top pick.

Analysis framework

The report uses a chain analysis of prices, export volumes, feedstock costs, downstream demand, and company earnings sensitivity: Korean customs NBL prices and export volumes are used to confirm supply contraction, butadiene and oil prices are used to assess cost-side changes, Malaysian glove manufacturers' import dependence and restocking demand are used to gauge demand resilience, and these are then mapped to the investment views on Kumho Petrochemical, LG Chem, and Nan Ya Plastics.

Methodology notes

• Industry supply and demandTight supply-demand and price transmission analysis

  Assess the degree of supply tightness through declining NBL export volumes, improving medical glove demand, and feedstock shortages.

  Korea's average NBL exports in April-May were below the 1Q26 level, and Malaysian glove manufacturers are highly dependent on imported NBL, indicating that supply contraction could directly push up NBL prices and margins.

• Margin analysisProduct price less feedstock cost framework

  Compare changes in NBL, SBR, and butadiene prices to judge whether product margin expansion is sustainable.

  Butadiene prices fell 27% in May, while NBL prices still rose month over month and SBR declined only modestly; based on this, the report estimates that NBL margins rose to $916/t and exceeded SBR.

• Forecast assumptionsOil price and capacity constraint scenario

  Combine the 2H26 oil price assumption of about $90/bbl with limited global capacity additions to form the NBL price forecast.

  The report expects NBL prices to gradually decline from 3Q26 to 4Q26, but 2027 and 2028 prices are still projected to remain above the 2023-2025 average, with limited global capacity additions as the key assumption.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kumho Petrochemical

  One of the main beneficiary companies from rising NBL/SBR margins.

  Strengths

  The report expects its 2Q26 chemicals operating profit to grow quarter over quarter, and improved NBL margins can offset some pressure from lower sales volumes.

  Weaknesses

  The report also expects its 2Q26 NBL sales volume to decline by more than 20% quarter over quarter, indicating that feedstock shortages will constrain volume growth.

  Comparison

  Compared with SBR, NBL margins have risen to a higher level and exceeded SBR for the first time since 2022.

  Risks

  If naphtha/LPG supply recovers, NBL prices fall back rapidly, or glove demand restocking ends, margin upside could narrow.

• LG Chem Ltd

  Listed as a key beneficiary with an OW rating.

  Strengths

  Improved margins for NBL and related chemicals are expected to drive quarter-over-quarter growth in 2Q26 chemicals operating profit.

  Weaknesses

  The company is also exposed to feedstock supply, oil price, and chemicals cycle volatility, and the report discloses that J.P. Morgan has client and potential investment banking relationships with it.

  Comparison

  Like Kumho Petrochemical, it is a beneficiary of this round of NBL/SBR margin expansion, but the report does not provide a detailed comparison of their earnings sensitivity.

  Risks

  If NBL prices retreat from elevated levels as forecast, oil price assumptions change, or synthetic rubber demand weakens, earnings recovery could be affected.

• Nan Ya Plastics Corp

  The report says it remains the Asia Pacific top pick, with an OW rating.

  Strengths

  As the Asia Pacific chemicals top pick, the report maintains a positive relative preference.

  Weaknesses

  The summary does not disclose its specific NBL exposure, earnings sensitivity, or target price.

  Comparison

  Compared with Kumho Petrochemical and LG Chem, the report positions Nan Ya Plastics more as a preferred Asia Pacific portfolio holding rather than only a direct Korean NBL beneficiary.

  Risks

  If regional chemicals demand or spreads disappoint expectations, its top-pick status could be challenged.

Key data

• Korean NBL price in May$1,633/t, +3.4% month over monthBased on Korean customs data.
• Average Korean NBL price in April-May$1,606/tThe report describes this as the highest in five years.
• Estimated NBL margin$916/tExceeded SBR for the first time since 2022 and was the highest since 2021.
• Kumho 2Q26 NBL sales volume forecastDown more than 20% quarter over quarterMainly due to naphtha supply shortages after the Middle East war.
• Asian butadiene price in May-27% month over monthIt had previously reached a four-year high of $1,945/t in April.
• Malaysian glove manufacturers' NBL import dependence64% of demand depends on importsMost imports come from Korea.
• Average Korean NBL exports in April-May44kt33% below the 1Q26 monthly average.
• NBL price forecast3Q26 $1,281/t; 4Q26 $1,083/t; 2027 $940/t; 2028 $890/tThe 2027-2028 forecasts remain above the 2023-2025 average of $786/t.

Impact & implications

The investment implication is that supply tightness in the NBL/SBR chain may continue to support margins for Korean chemical companies in the short term. Even if sales volumes decline due to feedstock shortages, improvements in prices and spreads may still generate earnings upside. Direct beneficiaries include Kumho Petrochemical and LG Chem; if NBL prices gradually retreat as forecast, the investment focus will shift from short-term margin spikes to whether tight supply-demand balance and capacity expansion remain intact.

Risks

• NBL prices are already at a five-year high; if supply recovers or restocking demand fades, prices may fall back quickly.
• The assumption of about $90/bbl oil in 2H26 is one of the forecast inputs; deviations in oil prices will affect NBL price and margin forecasts.
• Although companies such as Kumho benefit from spread expansion, feedstock shortages may lead to lower sales volumes.
• If the improvement in Malaysian medical glove demand proves unsustainable, support for NBL demand will weaken.
• Global capacity additions are judged to be limited; if actual new capacity exceeds expectations, the 2027-2028 price midpoint may be lower than forecast.
• The report contains standard conflict-of-interest disclosures, including J.P. Morgan's market-making, client relationships, and certain compensation relationships with related companies, so investors need to make independent judgments.

What to watch

• Whether Korean customs NBL prices and export volumes continue to indicate supply tightness.
• Raw material procurement, operating rates, and the sustainability of restocking among Malaysian glove manufacturers.
• The pace of naphtha/LPG supply recovery and the impact of the Middle East situation on the feedstock chain.
• Changes in Asian butadiene prices, ABS/SBR operating rates, and downstream demand.
• Whether 2Q26 chemicals operating profit at Kumho Petrochemical and LG Chem validates margin elasticity.
• Whether NBL prices decline as the report forecasts to $1,281/t in 3Q26 and $1,083/t in 4Q26.