Equity Analysis /

Thailand (Bualuang): Refining & Chemical - GRM and most chemical spreads slipped

  • Headline GRM slipped WoW

  • Ethylene spread dropped; Propylene spread was stable WoW

  • HDPE and PP spreads softened WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
26 January 2021

Headline GRM declined last week, squeezed by slimmer gasoline and fuel oil crack spreads. 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, most chemical prices and spreads weakened, squeezed by slow buying—particularly in China (restocking flows ahead of Chinese New Year will soon end)—in the face of greater product 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). Also, there’s scope for upside to its long-term growth profile from future acquisitions. 

Headline GRM slipped WoW 

The mean Singapore GRM declined US$0.34 WoW to $1.25/bbl, squeezed by slimmer gasoline and fuel oil crack spreads. Seasonally heavier demand (winter) and expectations of tighter supply availability upon the upcoming refinery maintenance season boosted jet/kerosene and diesel spreads by $0.17 WoW to $3.56/bbl and by $0.14 WoW to $4.26/bbl, respectively (most positive for TOP).  

In contrast, weaker demand brought about by new lockdown measures pushed gasoline spread down $0.26 WoW to $5.05/bbl (most negative for SPRC). Also, greater supply from Saudi Arabia squeezed the high-sulphur fuel oil spread by $0.39 WoW to negative-$3.78/bbl (close to what used to be its typical range of negative-$4-5/bbl).