Future rosy for Thai naphtha-based petrochemical producers: Fitch
THAILAND’S naphtha-based petrochemical producers will continue to benefit from lower oil prices in 2016 but gas-based producers’ margins have been squeezed, according to Fitch Ratings.
Fitch said the margins of naphtha-based chemical producers had improved as a result of the low oil prices while most gas-based operators’ margins had narrowed because gas prices had not fallen as much as oil and naphtha prices.
As a result, petrochemical product prices are still largely linked to naphtha prices, it said.
Naphtha prices dropped 43 per cent in 2015 but Thailand’s average pooled-gas price declined only 13 per cent.
Prices of olefins and polyolefin products fell 20 to 40 per cent and 20 to 25 per cent, respectively, following the drop in naphtha costs.
The earnings before interest, tax, depreciation and amortisation (EBIT) margin of the chemical business of Siam Cement Public Co Ltd, the largest naphtha-based producer in Thailand, increased to about 20 per cent in 2015 from about 8 per cent in 2014.
In contrast, the olefins and derivative business of PTT Global Chemical Public Co Ltd, the largest gas-based producer in Thailand, dropped to about 24 per cent from about 26 per cent.
Fitch expects polyolefin spreads to naphtha to remain strong for Thai producers in 2016. Although new capacity coming on-stream will likely put some pressure on the spreads, especially for polypropylene, it said.
Indian trend
The trend is similar in India with the two predominantly naphtha-based petrochemical operators – Reliance Industries Ltd and Indian Oil Corporation Ltd – benefiting from the lower feedstock prices and strong polymer spreads to naphtha despite falling product prices.
RIL’s EBIT margins for its petrochemical business improved to 12.2 per cent during the first nine months of the financial year ending March from 8.4 per cent for the same period last year. Similarly, the EBIT margins for IOCL’s petrochemical business improved to 29.1 per cent for the same period from 9.1 per cent a year earlier.
Margins for GAIL (India) Ltd’s petrochemical business, which uses gas as feedstock, have weakened. It suffered EBIT losses of INR6.9 billion (Bt3.6 billion) in the first nine months of the financial year ending March compared with an EBIT profit of INR2.9 billion a year earlier.
Fitch expects the company’s 2016 full-year profitability to remain weaker than 2015, although it expects some margin improvement from its successful re-negotiation of prices for certain long-term gas-purchase agreements in December 2015.
The profitability of South Korea-based SK Innovation Co Ltd’s naphtha-based petrochemical business also improved in 2015.
Fitch expects SKI’s petrochemical business to benefit from robust product spreads to naphtha in 2016.
