Petrochemicals

Petrochemical price monitor

Petrochemicals

Naphtha hits 4-year low, slashing olefins price. The plunge in naphtha price

again pulled down olefins product prices, especially ethylene, which fell 5.9% WoW

to a 15-month low of US$1,350/t, the steepest WoW change in more than two

years and despite tight regional supply. Ethylene supply will tighten further as

naphtha cracker LG Chem in Korea shuts for maintenance, taking 1mtpa off the

market for a month from Oct 20. PE/PP prices barely changed (-0.6% WoW) amidst

weakening demand in the region. Non-integrated producers continued to benefit

from lower ethylene price with PE-ethylene spread up 54-61% WoW.

PX price still slipping. PX price fell to a 4-year low of US$1,053/t, -5.8% WoW and

-26.5% from end-2013. This was in line with lower feedstock cost (naphtha), weak

demand and ample supply. Operators will continue to be hit by narrower spread,

down 14.7% from 3Q14. PTA production cuts are still playing a crucial role in

determining demand for PX, which remains on the downside. According to an

industry source, Oriental Petrochemical Taiwan plans to shut its 400ktpa-PTA plant

from end-Oct until the end of 2014 due to weak PTA-PX spread.

PET/PTA spread heading down from 20-month high. As expected, integrated

PET/PTA spread fell by 6.7% WoW to US$335/t due to lower PTA and PET prices,

down sharply by 5.5-7.7% WoW. This was despite lower feedstock cost (MEG and

PX, down 4.5-5.8% WoW). Bottle-grade PET fell 4% WoW to US$1,190/t, with falling

feedstock (PTA and MEG) prices and continued slow demand for PET in Asia.

Investment view: IVL (-7.9% WoW) led the sector (-3.1% WoW) to underperform the

market (-1% WoW). We believe this reflects the market’s disappointment in IVL’s new

acquisition (SASA), which has been put off to 2015, largely because of government red

tape. PTTGC fell 1.7% WoW, slightly below the market. We believe concerns on

feedstock cost and 3Q14 earnings are mostly priced in but weakening oil price will

continue to depress the sector in the near term.