Equity Analysis /

Thai (Bualuang): Refining & Chemical- GRM and most chemical spreads fattened

  • Headline GRM strengthened further WoW

  • Ethylene and Propylene spreads inched up WoW

  • HDPE and PP spreads softened WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
20 April 2021

Headline GRM strengthened further last week, boosted by fatter crack spreads across most product categories. The global COVID-19 resurgence may squeeze petroleum demand in the short-term, but infection rates are now declining in many countries, supported by the rolling out of vaccination programs, so we expect the consumption of refined products to start increasing soon. And recovering demand should boost GRM in the months ahead. Moreover, spring refinery maintenance season has started, so supply will tighten, supporting GRM. TOP is our refinery value pick, as its production cost efficiency makes its earnings profile relatively more leveraged to a rebounding GRM. SPRC is a trading play on the “gasoline high season” theme.

Last week, most chemical prices and spreads expanded, driven by rising feedstock costs, stronger regional demand, and tight supply. Our top Chemical pick remains IVL, as it makes compounds that are molded into essential products (which are in even greater demand in the COVID-19 era). And there’s scope for upside to its long-term growth profile from future acquisitions. Furthermore, the second-quarter is normally a peak season for polyester chain products (IVL’s main products).

Headline GRM strengthened further WoW

The mean Singapore GRM increased a further US$0.17 WoW to $2.54/bbl, with fatter crack spreads across most product categories. Improving demand in Asia and lower regional supply (due to planned maintenance at several refineries) boosted jet/kerosene and diesel spreads by $0.99 WoW to $3.53/bbl and by $0.20 WoW to $4.78/bbl, respectively (most positive for TOP). Also, stronger demand from Pakistan and Kuwait for power generation pushed the high-sulphur fuel oil spread up $0.47 WoW to negative-$4.03/bbl (in line with what used to be its typical range of negative-$4-5/bbl).