Petrochemical & Refinery

Petrochemical & Refinery

IVL and IRPC's spreads strong
During the recent week, PET spread (IVL) has rebounded strongest. PTA-Px
(making up 20% of IVL's total sales volume) spread has widened by 11.4%wow to
US$164/ton; Px (raw material) price has slipped by 2.0%wow to US$1,200/ton as
a result of a new supply in 2014. Moreover, cotton price has stayed as high as
92.4 cent/lb, making the two-year new high, thus signaling an increase in price of
alternative product like polyester fiber in near future. This is has benefited IVL, as
the polyester fiber business makes up 20% of its total sales volume. Olefins
spreads (PTTGC, IRPC) have been increasing as well. Spreads of PP-Naphtha,
PS-Naphtha, SN-Naphtha and ABS-Naphtha (specialty grade plastic; making up
30-40% of IRPC's total sales volume) have increased by 6.3%wow, 2.9%wow,
6.1%wow and 3.6%wow to US$566/ton, US$826/ton, US$709/ton and
US$971/ton, respectively; thanks to rising price and lower raw material (naphtha)
cost.
- Sector's 1Q14 profit to rebound, especially IVL and IRPC
We project the sector's 1Q14 net profit to rebound from 4Q13 owing to rising
spreads, especially olefins spread, thus benefiting PTTGC and IRPC most. However,
PTTGC would be affected by weakening aromatics spreads and the one-month
unplanned shutdown of I4-1 olefins factory. Accordingly, IRPC would benefit most
from the rebound of olefin spread in 1Q14 (olefins, styrenix, aromatics and
refinery businesses makes up 35%, 15%, 10% and 35% of IRPC’s sales volume,
respectively). IRPC's aromatics business focuses mostly on Bz. 1Q14 Bz-Naphtha
spread has risen by 9.9%qoq. Meanwhile, IRPC does not produce Px, of which the
spread has been dropping significantly. Therefore, weakening aromatics spreads
do not press IRPC. Similarly, IVL's earnings result is expected to reverse to profit
in 1Q14 thanks to the following factors: 1) PTA spread has been rising since the
beginning of 2014. 2) PTA sales volume is likely to grow as the PTA factory in
Europe has resumed working. 3) PET sales volume is projected to rise after the
polyester fiber factory in Indonesia has started its commercial run in January
2014. Overall, IVL's FY2014 net profit is projected to leap by 188.4%yoy.
- Top picks: IVL and IRPC
We recommend buying IVL([email protected]) and IRPC([email protected]) as their FY2014
earnings results are likely to rebound most.