Equity Analysis /

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

  • Headline GRM continued to rise WoW

  • Ethylene and Propylene spreads increased WoW

  • HDPE and PP spreads weakened WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
21 December 2021

Headline GRM strengthened further last week, boosted by fatter crack spreads across all product categories. Despite a short-term hiccup from concerns over a new COVID-19 variant, Omicron, 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. While increased demand pushed up the prices of some products, sluggish buying squeezed the prices of others. Nevertheless, most chemical spreads increased, driven mainly by a decrease in Naphtha feedstock cost. Our top Chemical pick remains IVL, as it makes compounds that are molded into essential products (which remain in great demand in the lingering COVID-19 era). And there’s scope for upside from its long-term growth profile via future acquisitions.

Headline GRM continued to rise WoW

The mean Singapore GRM continued its uptrend—up by $1.09 WoW to $6.50/bbl, boosted by fatter crack spreads across all product categories. Stronger regional demand and diminished inventories in Singapore pushed the gasoline spread up by $1.32 WoW to $15.60/bbl (most positive for SPRC). Moreover, improving demand across Asia and lower inventories in Singapore also boosted the jet/kerosene and diesel spreads $1.60 WoW to $11.53/bbl and $0.82 WoW to $12.34/bbl, respectively, (most positive for TOP). In addition, stronger bunker demand pushed the high-sulphur fuel oil spread up by $0.94 WoW to -7.27/bbl (still much weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).