Equity Analysis /

Thailand (Bualuang): Refining & Chemical - GRM contracted

  • Headline GRM declined WoW

  • Ethylene spread increased; Propylene spread slipped WoW

  • HDPE spread inched up; PP spread softened WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
17 August 2021

Headline GRM declined last week, squeezed by slimmer gasoline and fuel oil crack spreads. The COVID-19 resurgence in many Asian countries may reduce petroleum demand in the short-term, but we expect consumption of refined products to start picking up again once the situation eases. 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 for a rebound in GRM. And SPRC is a trading play on the “gasoline high season” theme.

Last week, chemical prices and spreads moved in various directions. Rising feedstock costs, stronger regional demand, and tight supply pushed up prices and spreads of some products. Meanwhile, sluggish buying squeezed prices and spreads of others. Our top Chemical pick remains IVL, as it makes compounds that are molded into essential products (which are in ever greater demand in the COVID-19 era). And there’s scope for upside due 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 declined WoW

The mean Singapore GRM declined by US$0.25 WoW to $2.63/bbl, squeezed by slimmer gasoline and fuel oil crack spreads. Weaker demand in Southeast Asia tied to COVID-19 resurgence and rising inventories in Singapore pushed the gasoline spread down by $0.77 WoW to $12.15/bbl (most negative for SPRC). Also, a spike in crude cost squeezed the high-sulphur fuel oil spread by $0.04 WoW to negative-$7.12/bbl (weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).