Petrochemical and Refinery

Petrochemical and Refinery

- Olefins spread remains outstanding
Last week, a price of raw material, Naphtha, dropped 1.1%wow to US$969/ton
along with decreasing global crude oil price, widening petrochemical spreads while
product prices remain high. For olefins (PTTGC, IRPC), HDPE-Naphtha and
LDPE-Naphtha spreads rose averagely 1.7%wow to US$612/ton and US$632/ton,
respectively. Similar to commodity-grade products, spreads of specialty products
e.g. PP-Naphtha, PS-Naphtha, and ABS-Naphtha (main products of IRPC, making
up 40% of total sales volume) increased 2.0%wow, 0.1%wow and 1.1%wow to
US$547/ton, US$747/ton, and US$937/ton, respectively. For aromatics (TOP,
PTTGC, ESSO, IRPC), Px-Naphtha and Bz-Naphtha spread also grew by
2.9%wow and 5.1%wow to US$289/ton and US$322/ton, respectively. For PET
(IVL), PET-PTA spread stayed at US$336/ton whereas PTA-Px spread widened by
2.5%wow to US$68/ton and PET-PTA-MEG spread climbed 21.8%wow to
US$20/ton. For PVC (VNT, TPC), PVC price stayed at US$1,050/ton, while
ethylene (raw material) price dropped 0.7%wow. Thus, PVC-Ethylene and PVCEthylene+
Caustic Soda spreads widened by 1.6%wow and 0.8%wow to
US$328/ton and US$658/ton, respectively.
- Strong profit recovery for IRPC, PTTGC, IVL in 2Q14
We expect the sector's 2Q14 net profit to improve from 1Q14 due to increasing
petrochemical spreads, especially olefins; thus benefiting PTTGC and IRPC most.
Also, PTTGC's olefins factory would resume working after a shutdown in 1Q14.
IVL's net profit is expected to improve from B368m in 1Q14 to B1bn in 2Q14;
massive extraordinary loss like B1.1bn inventory loss in 1Q14 is not expected to
be booked in 2Q14. PET spread has stayed high. In addition, prices of IVL's
products (PET, PTA and MEG) have limited downside, likely to increase from 1Q14.
- Buy IRPC, PTTGC, IVL
We recommend buying IRPC([email protected]), PTTGC([email protected]) and IVL([email protected]);
their 2Q14 and FY2014 net profit is expected to make a strong turnaround.