Petrochemicals

Petrochemical price monitor

Ethylene and derivative prices steady WoW at 52-week highs. Ethylene price
was US$1,465/t on higher feedstock cost (naphtha) and tight availability in the
region. PE prices were unchanged WoW and remain high amidst steady demand
and limited product availability. Propylene price rose 0.9% WoW on improved
regional buying trends while the price of downstream PP was steady WoW as
buyers were reluctant to restock and adopted a wait-and-see strategy. Weaker
demand from China remained the key factor hindering PE prices.
Production cut and higher feedstock cost drove PX price. PX price rose 4.7%
WoW to a 13-week high of US$1,260/t. This was the highest WoW change since
March 2014 due to higher feedstock cost, especially for Isomer MX for stand-alone
producers that have to import feedstock from others. We believe another factor is
the production cuts by regional PX producers. According to an industry source, the
operating rate of PX plants in Asia may be slashed from 89% in 2013 to 82% in 2014
in response to the excess supply in the region.
PET/PTA spread fell to 22-week low. Integrated PET/PTA spread continued to
plunge 13% WoW to a 22-week low of US$244/t due to higher feedstock cost, both
PX and MEG. This was despite higher PTA price (+3.5% WoW) due to production
cuts at several regional PTA plants in response to weak margins driven by the high
cost of feedstock PX and weak downstream polyester demand trends.
Investment view: The petrochemical sector (-2.1% WoW) underperformed the
market (-1.6% WoW), as prices of two key players, PTTGC and IVL, fell 2.4-2.5% WoW.
We believe the sell-off of petrochemical stocks is overdone given the marginal impact
from domestic politics. The weaker Thai baht will also benefit these operators since
most product prices are quoted in US$. We continue to like PTTGC best due to its
undemanding valuation at only 9x 2014’sP/E vs. >15x of regional peers.