Energy: Petro & Refinery Petrochemical

- All product spreads widen   

 

Spreads of all petrochemical products have widened over the past week owing to a 1.9%wow decrease in price of raw material, Naphtha, and rises in overall product prices. For olefins group (PTTGC and IRPC), PP-Naphtha spread increased 18.6%wow because PP price rose 8.4%wow, while HDPE-Naphtha spread increased 6.2%wow. For aromatics group (TOP, PTTGC, ESSO, and IRPC), Bz-Naphtha spread increased 80.5%wow since Bz price surged 13.8%wow. For PET group (IVL), PET-PTA-MEG spread widened 38.8%wow as a price of PET increased 4.9%wow to US$955/ton.  Profit rebound expected in 1Q15    

 

The sector’s earnings are believed to rebound to net profit in 1Q15, driven mainly by rising GRM on seasonal effects and because there would not be stock loss like in past quarters. The olefins business would most benefit in the current situation; although spreads of LDPE-Naphtha and HDPE-Naphtha in January weakened from 4Q14, they remained very high and have recently showed solid recovery. Similarly for the aromatics business, supply growth would slow down, so product spread is projected to stay close to that of 2014. In addition, IRPC may book extraordinary profit of around B3bn in this quarter. 

 

- IRPC is top pick   

We recommend NEUTRAL for the sector and select IRPC([email protected]) as a top pick for its profit is projected to rebound strongly in 1Q15 as a result of GRM, extraordinary income, and UHV project, of which the construction will be complete on October 1 and which will help enhance IRPC’s profit base. We also recommend buying PTTGC([email protected]), which is now laggard, and IVL([email protected]), since its profit tends to make a new high continuously.