Petrochemicals

Petrochemicals  

 

- Ethylene spread at 8-year high. Amidst lower naphtha price (-5.6% WoW), tight supply continued to drive ethylene spread to an 8-year high of US$855/t. The persistence of tight product availability owing to planned and unplanned cracker shutdowns in the region continued to hold ethylene and PE prices up, and they rose 1.1-1.5% WoW. PE-naphtha spread also rose 5-5.8% WoW. We expect PE/PP product prices to remain strong in the near term on seasonal demand. Product spread for non-integrated PE producers improved markedly WoW but remained low at only US$10-40/t, miles below its conversion cost of US$150/t.  

-Aromatics product prices boosted by higher feedstock cost. Prices of paraxylene and benzene inched up 1.2% and 0.3% WoW respectively, driven by higher feedstock cost, like isomer MX. Also behind the higher price was price rises for downstream products such as PTA (for PX) and styrene monomer (for BZ). Product spread for PX and BZ over naphtha grew 10.5-11.2% WoW.     

- PET/PTA spread weakened WoW as feedstock cost increased. Integrated PET/PTA spread fell 4.5% WoW to US$238/t, hurt by higher feedstock cost, mainly MEG, which climbed to an 18-week high. PTA price increased 1.6% WoW on tighter supply and higher feedstock cost but it failed to push up PET price, which was flat WoW at US$935/t. Seasonal demand for PET across Asia will support product spread in the near term as it is peak season, especially for bottle-grade PET.  

Investment view: The petrochemical sector index rose 2.9% WoW, outperforming the market (+2.7% WoW). This was driven by a 5.3% WoW rise in IVL’s share price due to market optimism about its continued acquisitions. PTTGC share price also improved 2.4% WoW, supported by favorable PE prices. Despite the lower oil price we believe investors will continue to assign greater weight to the strong product spread of the olefins chain. We maintain our positive view on PTTGC, which is also our sector pick.