Equity Analysis /

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

  • Headline GRM slipped WoW

  • Ethylene and Propylene spreads weakened WoW

  • HDPE and PP spreads dropped WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
11 May 2021

Headline GRM declined last week, squeezed mainly by a weaker fuel oil crack spread. 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, most chemical prices and spreads slimmed back, due to a sharply higher Naphtha feedstock cost in the face of subdued regional demand. 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 slipped WoW

The mean Singapore GRM declined US$0.30 WoW to $2.87/bbl, squeezed mainly by weaker fuel oil crack spread. The high-sulphur fuel oil spread declined $0.81 WoW to negative-$4.44/bbl (in the pre-IMO2020 era its typical range was negative-$4-5/bbl). Increasing US inventories pushed gasoline spread down $0.08 WoW to $11.04/bbl (most negative for SPRC), even though strong demand in North America lent some support to the gasoline crack spread. Also, slower demand amid COVID-19 resurgences in some countries and greater exporting by India squeezed diesel spread by $0.04 WoW to $5.37/bbl.

In contrast, an improving demand outlook amid the inauguration of travel bubbles between some countries and regional supply tightness boosted jet/kerosene spread by $0.10 WoW to $5.47/bbl (most positive for TOP).