Petrochemical

Petrochemical
Olefins spread surge above aromatics spread, benefiting IRPC/PTTGC
Naphtha price has declined significantly by 2.3%wow over the past week to US$934/ton,
following decreasing global crude oil price after worries about a war between Syria and the US
eased off. As a result, petrochemical spread has risen in the recent week, while the product
price has stayed high close to that of the previous week. Olefins (PTTGC, IRPC): HDPENaphtha
and LDPE-Naphtha spreads surged 3.9%wow and 3.1%wow to US$577/ton and
US$712/ton, respectively. Spreads of downstream specialty products (30-40% of IRPC’s total
products) such as PP-Naphtha, PS-Naphtha, and ABS-Naphtha have increased along with
those of downstream commodity grade products, respectively by 3.9%wow, 1.7%wow, and
1.7%wow to US$572/ton, US$977/ton, and US$1,017/ton. Aromatics (TOP, PTTGC, ESSO,
IRPC): Px-Naphtha and Bz-Naphtha spreads have also widened 1.8%wow and 5.1%wow to
US$551/ton and US$389/ton, respectively. However, the product prices dropped slightly from
the previous week respectively by 0.8%wow and 0.2%wow to US$1.48/ton and US$1.32/ton,
which are comparatively high. For a downstream product PET (IVL), spread of PET-PTA stayed
flat at US$345/ton in the latest week, while spread of PTA-Px increased 10.6%wow to
US$80/ton. Spread of PTE-PTA-MEG improved from –US$24/ton in the previous week to -
US$17/ton. PVC (VNT and TPC): PVC price stayed at US$1,020/ton, whereas a price of raw
material, ethylene, shifted 1.4%wow. As a result, spreads of PVC-0.5 ethylene and PVC–
ethylene + caustic soda shrank 3.0%wow and 1.4%wow to US$320/ton and US$690/ton,
respectively.
- 3Q13 profit to grow from refinery business; petrochemical remains flat
We estimate the sector’s profit to grow in 3Q13 after making the year’s low in 2Q13. A key
contributing factor would be global crude oil price (Dubai) that has increased 5.4%qoq and will
result in a stock gain of more than US$5/barrel in 3Q13 versus a stock loss in the previous
quarter. Gross refinery margin in 3Q13 might only stable from the prior quarter as benefits
from the U.S. driving season and Ramadan in Indonesia will be offset by decreasing demands
after the end of the high season at end-3Q13. For the petrochemical business, profit from the
olefins line would stay high close to that of 2Q13, whereas the aromatics line would show
lower profit from the previous quarter. However, pressuring factors in this quarter are 1) a
maintenance shutdown of I4-1 olefins plant with ethylene production capacity of 515,000
tons/year for 35-38 days (during July-August) and an unplanned shutdown of an LDPE plant
with a production capacity of 300,000 ton/year for three months and a half; 2) a provision for
the damage from the oil leak into the sea, and 3) a shutdown of the gas separation plant unit
5 (GSP#5) for five months, which would affect the net profit by B400m each month on
average.
- NEUTRAL. IRPC is top pick
We maintain NEUTRAL weight, believing that the share prices have already declined to the
lowest point until there is limited downside and a greater chance of rebound now. We upgrade
our recommendation for IRPC from HOLD to BUY as the product spread tends to widen
continuously along with the recovering economy, especially of China that is the major
consumer. IRPC’s share price also has 21.5% upside from the fair value, compared with only
1.9% of PTTGC, which also got pressuring factors in 3Q13 as mentioned above. We select
IRPC as a top pick.