Equity Analysis /

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

  • Headline GRM strengthened WoW

  • Ethylene and Propylene spreads contracted WoW

  • HDPE and PP spreads declined WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
19 January 2021

Headline GRM inched up last week, with fatter crack spreads across most product categories. The global resurgence in COVID-19 may squeeze petroleum demand in the short-term, but we still expect consumption of refined products to increase further, once the situation improves. And that demand recovery should boost GRM in the months ahead. Moreover, the Northern Hemisphere winter is now in full force, so demand is seasonally heavier, supporting GRM. TOP is our refinery value pick, as its production cost efficiency makes its earnings profile relatively more leveraged to a rebounding GRM. 

Last week, chemical prices mostly strengthened, driven by cost-push factors. Nevertheless, a higher Naphtha feedstock cost squeezed the spreads of most products. 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). Also, there’s scope for upside to its long-term growth profile from future acquisitions. 

Headline GRM strengthened WoW 

The mean Singapore GRM expanded US$0.17 WoW to $1.59/bbl, with fatter crack spreads across most product categories. Diminished supply in Asia pushed gasoline spread up $0.37 WoW to $5.31/bbl (most positive for SPRC). Also, tight kerosene supply and stronger demand in India, Japan, Myanmar, and the Philippines boosted jet/kerosene and diesel spreads by $0.24 WoW to $3.39/bbl and by $0.43 WoW to $4.12/bbl, respectively (most positive for TOP).  

In contrast, slower demand in the Middle East squeezed the high-sulphur fuel oil spread by $0.49 WoW to negative-$3.39/bbl (still better than what used to be its typical range of negative-$4-5/bbl).