Petrochemicals

Petrochemical price monitor

- Soft start for olefins chain. Except for propylene (+6.1% WoW), olefins and derivative product prices slid 1.3-3.3% WoW, on lower oil and naphtha prices. Product spread improved slightly, up 0.7-4.1% WoW, as naphtha price plunged 11.3% WoW to a 6-year low of only US$359/t, a sharp fall of 59% over the last six months. Behind the price plunge is cheaper feedstock cost and a decline in regional buying interest. We expect PE/PP prices to falter in weeks ahead to reflect the recent decline in feedstock prices. Among non-integrated spreads, LDPE-ethylene was the only one to underperform on a rapid slowing in demand.

- Aromatics spread continued to ease WoW. Aromatics prices weakened to a new 52-week low while spread fell 1.8-5.4% WoW despite lower naphtha price. This reflected a combination of subdued demand and oversupply in the region. BZ price decline still outpaced PX on weaker demand for downstream SM and PS to 5-year lows. We do not expect price or spread to turn around until there are indications of delays in new supply, primarily in China.    

- Integrated PET/PTA spread weakened on poor demand. PET and polyester prices softened 5.2% WoW to US$910/t, the lowest in more than five years after year-end holiday demand cooled. Also behind lower product prices was lower feedstock cost as PX and MEG dropped 6.4% and 7.6% WoW, following lower naphtha price. We believe demand for PET and polyester will pick up again in late January to early February due to restocking ahead of Chinese New Year, although the rise could be marginal due to abundant supply. 

Investment view: The petrochemical sector index rose 3.2% WoW, driven by PTTGC (+4.9% WoW), benefiting from improved sentiment as the government moves to adjust LPG price. The company will benefit from higher ex-refinery LPG price and the cancellation of oil fund contributions for LPG used as feedstock in the petrochemical industry. We view that this positive development is priced in and the market will return to focus on the weak profit expected in 4Q14.