Petrochemical

Petrochemical   

 

- All spreads stay high 

Overall product spreads have improved slightly from the prior week, thanks to a 0.7%wow decrease in raw material cost, Naphtha, while overall product prices have remained unchanged. For olefins products (PTTGC and IRPC), spreads of commodity grade plastics (40% of PTTGC’s products and 20% of IRPC’s products), i.e. HDPE and LDPE, have widened to US$720/ton and US$735/ton, while spreads of specialty plastics (40% of IRPC’s products), i.e. PP and ABS, have stood at US$620/ton and US$795/ton, respectively. For aromatics products (TOP, PTTGC, ESSO, and IRPC), a spread of PX has remained at US$345/ton, while for PET (IVL), PET-PTA-MEG spread has surged significantly to US$179/ton and PTA-Px spread has improved to US$103/ton. 

-Strong rebound in 4Q15 

We project 4Q15 profit to rebound significantly from 3Q15, in which the profit fell sharply from 2Q15, as stock loss from the refinery business would decrease more than US$15/barrel. 4Q15 profit would be driven mainly by the oil price since its downside has become increasingly limited, which could result in significantly lower stock loss than 3Q15 or even stock gain. Moreover, GRM would surge again at the end of the year as a result of a winter season. In addition, increasing oil prices would help revive petrochemical prices and spreads from a bottom of the year in 3Q15. Plus, 4Q15 is a high season, in which producers would start to restock petrochemical for production for a festive season at the end of the year. 

- Top pick: IRPC 

We recommend UNDERWEIGHT for the sector since there is a risk from the economic slowdown in China. However, IRPC is still a best choice of the sector as its profit base would expand after the UHV project is complete at the end of the year and the share price has fallen more deeply than its fundamental factors suggest.