Petrochemical & Refinery Petrochemical

Petrochemical & Refinery Petrochemical

 

- IVL, IRPC spread outstanding the most 

 

Spreads of PET (IVL) and downstream specialty olefins (30% of IRPC) have been outstanding the most in the past week. PET-PTA-MEG spread has widened continuously over the past six months; while PET price has been less fluctuating than the oil price, average raw material price has declined following the oil price. Likewise for downstream specialty olefins, spreads of PP-Naphtha, PS-Naphtha, and ABS-Naphtha have increased 2.9%wow, 2.4%wow, and 1.2%wow, respectively, over the past week. HDPE-Naphtha spread decreased 1.6%wow but remained very high. 

 

- Petrochemical is hero in 2Q15 

 

We project the sector’s profit in 2Q15 to be driven mainly by the petrochemical business. Overall product spread has improved significantly from 1Q15. Particularly, PTTGC and IRPC, whose income depends mainly on the petrochemical business by 75% and 65%, respectively, would benefit from overall olefins spread that has stood above US$800/ton again and will remain high in 2H15. Similarly, IVL’s spread would increase from 1Q15 and there is a good chance that the company would book inventory gain as a result of increasing product prices. Aromatics spread would be good in the short term owing to temporarily decreasing supply in the region, while new Px supply of 2.6 million tons a year will gradually enter the market in 2H15, which will be an adverse effect on the aromatics business. 

 

- Top picks: IRPC, PTTGC, IVL 

 

We select IRPC([email protected]), IVL(FV@B32), and PTTGC([email protected]) as top picks of the sector; these companies will benefit from increasing spreads in the rest of the year. In addition, P/E ratios of IRPC and PTTGC are only 10.3x and 9.7x, lower than the sector’s average. For IVL, despite high P/E ratio of 27.2x, it is still interesting for its future business expansion that would boost profit to new highs continuously.