Petrochemical

Petrochemical sector

- Olefins spreads widen, aromatics spreads stay flat
Olefins (PTTGC, IRPC): Product spreads over the past week have widened remarkable.
HDPE-Naphtha and LDPE-Naphtha spreads surged more than 4.7%wow and 5.9%wow to
US$540/ton and US$660/ton, respectively, although a price of raw material, Naphtha, has
risen 1.1%wow to US$970/ton. This situation has been good for both PTTGC and IRPC.
However, PTTGC has benefited more as it uses natural gas as a raw material (whose price
is not as fluctuating as oil) for around 80-90% of its production comparing to IRPC that
uses Naphtha for a 100%. Prices of downstream specialty products such as PP, PS, and
SM, which are IRPC’s main products (30-40% of its total products), and downstream
commodity grade products have increased average by 0.5%wow, whereas the spreads
shrank slightly because the raw material price (Naphtha) rose at a higher rate. Aromatics
(TOP, PTTGC, ESSO, IRPC): Overall product spreads over the past week could only
stabilize. Px price and Px-Naphtha spread dropped 0.8%wow and 0.4%wow to
US$1,500/ton and US$534/ton, respectively, which are still high compared with the past.
Price of Bz and Bz-Naphtha spread, on the other hand, increased 1.5%wow and 2.7%wow
to US$1,500/ton and US$343/ton, respectively. For a downstream product PET (IVL),
spreads of PET-PTA and PTA-Px have risen 5.4%wow and 12.9%wow to US$340/ton and
US$68/ton, while spread of PTE-PTA-MEG decreased from US$49/ton in the previous
quarter to US$30/ton. PVC (VNT and TPC): PVC price slid 1.0%wow to US$1,020/ton,
whereas a price of raw material, ethylene, shifted 0.7%wow. As a result, spreads of PVC-
0.5 ethylene and PVC–ethylene + caustic soda) tapered 4.3%wow and 2.1%wow to
US$335/ton and US$705/ton, respectively.
- 3Q13 profit to grow following gradually recovering product spreads
We estimate the sector’s profit to rally in 3Q13 as a gradual recovery of global economies
would boost petroleum and petrochemical demands. Another factor to boost the demands
is high seasons. The refinery business will benefit from the U.S. driving season, Ramadan
in Indonesia, and a winter. For the petrochemical business, late 3Q13 throughout early
4Q13 are the period when entrepreneurs start restocking raw material again for a
production for the New Year and winter, so petrochemical spread and refinery margin
would be in an uptrend when compared with 1H13. Moreover, the refinery business would
also recognize a stock gain as a result of rising crude oil price. However, pressuring factors
in 3Q13 are shutdowns of a LDPE plant and the gas separation plant unit 5 (GSP#5) and a
provision for the damage from the oil leak into the sea.
- Speculate PTTGC and IRPC for spread surge
We maintain NEUTRAL and reiterate to buy TOP([email protected]) as aromatics spread has
remained high while gross refinery margin would be rising during winter at the year-end.
Moreover, the share price still has 25% upside. Although we recommend HOLD for
PTTGC([email protected]) and IRPC([email protected]), investors can still speculate for a spread
recovery as PTTGC and IRPC still have 3.3% and 25.3% upside (the spread change is still
in line with our forecast). For IVL([email protected]), the share price already exceeded the fair
value.