Petrochemical & Refinery

Petrochemical & Refinery
- Olefins spread very strong this week
Olefins spread (PTTGC, IRPC) has stayed high in the recent week. MEGNaphtha
spread has rebounded over US$0/ton for the first time in one month as
MEG price has risen by 2.8%wow to US$943/ton. HDPE-Naphtha and LDPENaphtha
spreads have widened by 1.3%wow (or 16.5%yoy) and 2.7%wow (or
26.3%yoy) to US$608/ton and US$678/ton, respectively. Spreads of PP-Naphtha,
PS-Naphtha and ABS-Naphtha (specialty grade plastic; making up 30-40% of IRPC
total sales volume) have stayed high at US$533/ton, US$803/ton and
US$938/ton, respectively. For aromatics businesses (TOP, PTTGC, ESSO,
IRPC), Px-Naphtha spread has leapt by 29.3%wow to US$300/ton as we expected
after making the three-year lowest in early-January. However, Bz-Naphtha spread
has dropped by 4.1%qoq to US$283/ton. As Px price has increased by 6.0%wow,
PET spread (IVL), especially PTA-Px spread (25% of IVL's total sales volume)
has dropped by 24.1%wow to US$148/ton, which is still better than US$60/ton in
the recent three months. Meanwhile, PET-PTA-MEG spread has stayed at -
US$79/ton. PVC (VNT, TPC) price has declined by 2.4%wow to US$1,020/ton,
lowering spreads of PVC-Ethylene and PVC-Ethylene+Caustic Soda by 6.5%wow
and 1.8%wow to US$305/ton and US$630/ton, respectively.
- IRPC and PTTGC benefit most
The sector's 1Q14 net profit is projected to rebound from 4Q13 owing to rising
spreads, especially olefins spread, thus benefiting PTTGC and IRPC most. For IVL,
1Q14 net profit is expected to rebound significantly. The sector's FY2014net profit
is expected to grow by 17%yoy, mainly from PTTGC's increasing sales volume (in
2013, PTTGC's factories underwent planned and unplanned shutdowns). We
conservatively project olefins spread to stay flat yoy, so it would have a significant
upside from a growth in demand. In the next couple years, supply for olefins is
expected to grow by only 500,000 tons/year, while demand is projected to grow
by 4-5 million tons/year.
- Top picks: IRPC and PTTGC
We recommend buying IRPC([email protected]) and PTTGC([email protected]). They would
benefit most as olefin price and spread have been increasing since the beginning
of 2014, possibly rising further for another couple year.