Equity Analysis /

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

  • Headline GRM contracted WoW

  • Ethylene spread dropped; Propylene spread expanded WoW

  • HDPE and PP spreads decreased further WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
25 May 2021

Headline GRM declined last week, squeezed by slimmer crack spreads across most product categories. The global COVID-19 resurgence may reduce petroleum demand in the short-term, but we expect the consumption of refined products to start picking up 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, most chemical prices and spreads continued to decline, due to falling feedstock costs, slower buying across the region, and ample supply availability. 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 via future acquisitions. Furthermore, the second-quarter is normally a peak season for polyester chain products (IVL’s main products).

Headline GRM contracted WoW

The mean Singapore GRM weakened US$0.69 WoW to $1.64/bbl, squeezed by slimmer crack spreads across most product categories. Increasing inventories in Asia and slower demand in Southeast Asia (brought about by lockdowns in some countries) pushed gasoline spread down $0.40 WoW to $9.24/bbl (most negative for SPRC). However, strong demand in North America lent some support to the gasoline crack spread. Weak demand in India tied to COVID-19 resurgence squeezed jet/kerosene spread by $0.46 WoW to $5.40/bbl. Ample supply availability in Singapore squeezed the high-sulphur fuel oil spread by $2.20 WoW to negative-$8.09/bbl (weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).