Equity Analysis /

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

  • Headline GRM declined WoW

  • Ethylene and Propylene spreads softened WoW

  • HDPE and PP spreads moved down WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
16 November 2021

Headline GRM declined last week, squeezed by slimmer crack spreads across most product categories. The reopening of many economies worldwide looks set to boost broad demand for refined petroleum. Furthermore, the upcoming winter season 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.

Last week, chemical prices moved in various directions. Higher feedstock costs pushed up the prices of some products on the one hand, while on the other hand weaker regional demand put downward pressure on prices of other products. Meanwhile, spreads across most product categories that we monitor decreased, squeezed by subdued buying in Asia and ample supply availability. 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 from its long-term growth profile via future acquisitions.

Headline GRM declined WoW

The mean Singapore GRM declined by $1.45 WoW to $6.28/bbl, squeezed by slimmer crack spreads across most product categories. Greater exports from China and increasing inventories in Singapore pushed the gasoline spread down by $3.63 WoW to $16.56/bbl (most negative for SPRC). Also, a decline in domestic flights in China tied to COVID-19 resurgence squeezed the jet/kerosene spread $0.49 WoW to $10.52/bbl. In addition, ample supply availability in Asia squeezed the high-sulphur fuel oil spread $1.00 WoW to -9.98/bbl (much weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).

In contrast, improving economic activities in Asia boosted diesel spread by $0.45 WoW to $12.57/bbl (most positive for TOP).