Equity Analysis /

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

  • Headline GRM weakened WoW

  • Ethylene and Propylene spreads inched up WoW

  • HDPE and PP spreads declined WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
18 May 2021

Headline GRM weakened last week, squeezed by slimmer gasoline and fuel oil crack spreads. The global COVID-19 resurgence may reduce petroleum demand in the short-term, but we expect the consumption of refined products to start increasing once the situation eases. And recovering demand should boost GRM in the months ahead. TOP is our refinery value pick, as its production cost efficiency makes its earnings profile relatively more leveraged to a rebounding GRM. Also, SPRC is a trading play on the “gasoline high season” theme.

Last week, chemical prices and spreads mostly declined, due to slower demand across the region. However, supply tightness lent support to some product prices and spreads. 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 weakened WoW

The mean Singapore GRM declined US$0.54 WoW to $2.33/bbl, squeezed by slimmer gasoline and fuel oil crack spreads. Greater supply availability (the Colonial pipeline network in the US resumed operating) and increased exports by India pushed gasoline spread down $1.40 WoW to $9.64/bbl (most negative for SPRC), even though strong demand in North America lent some support to the gasoline crack spread. Weaker demand amid plentiful supply squeezed the high-sulphur fuel oil spread by $1.44 WoW to negative-$5.88/bbl (weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).