Petrochemicals

Petrochemical price monitor

- Better week for propylene but others continued to fall. Propylene price rose 11.4% WoW on strong buying in China and tighter supply from plant shutdowns in Korea and Japan. The price rise will be short-lived if these plants resume normal production by early Feb. For other olefins and derivative products, prices continued to slide 1.3-3.1% WoW, on lower feedstock cost. Product spread also fell 2.3-6.4% WoW, as naphtha price rose 3.5% WoW, though this still represents a sharp fall of 57% over the last six months. Buyers will likely be cautious in the near term as oil price remains weak and there are no signs of improving demand.

- Aromatics prices down to 6-year low. Aromatics prices slid to a six-year low, representing a sharp >50% fall in price over the last six months. Poor demand, mainly in China, is the key factor behind lower price. Yet, there were no signs of rebuilding stock of either PX or BZ, as buyers expect prices to continue to move down upon lower feedstock cost and oversupply in the region.    

- Integrated PET/PTA spread bettered WoW by lower cost. Although sluggish demand for PET and polyester continued to depress prices, lower feedstock costs helped lift integrated margin by 4.5% WoW to US$294/t. There remains no sign of restocking of PET as buyers are cautious, expecting selling price to weaken further. We expect demand for PET and polyester to pick up again in late January to early February due to restocking ahead of Chinese New Year, but the impact on price will be muted given the abundant supply. 

Investment view: The petrochemical sector index edged up 0.2% WoW, slightly underperforming the market (+0.3% WoW). This was driven by IVL (+0.5% WoW) on better product spread and its new acquisition in Turkey. PTTGC’s share price was unchanged after a big jump the previous week. We expect the market to turn to focus on weak 4Q14 earnings, which could come out in the red due to huge inventory losses. Also, product prices for the olefins chain have continued to decline in 1Q15.