Equity Analysis /

Thailand: Refining & Chemical-GRM extended gain; most chemical spreads weakened

  • Headline GRM continued to rise WoW

  • Ethylene spread increased further; Propylene spread fell WoW

  • HDPE and PP spreads continued to decline WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
6 July 2021

Headline GRM expanded further last week, boosted by fatter 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 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. Also, SPRC is a trading play on the “gasoline high season” theme.

Last week, most chemical prices increased, driven by rising feedstock cost and improved regional demand. Nevertheless, chemical spreads mostly declined, squeezed by a sharp rise in feedstock costs. 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 via future acquisitions. Furthermore, the second-quarter is normally a peak season for polyester chain products (IVL’s main products).

Headline GRM continued to rise WoW

The mean Singapore GRM inched up further by US$0.14 WoW to $1.80/bbl, boosted by fatter gasoline and fuel oil crack spreads. Diminished inventories in Singapore and expectations of lower exports from China pushed the gasoline spread up by $0.97 WoW to a three-month high of $10.56/bbl (most positive for SPRC). Also, stronger demand from China and Pakistan boosted the high-sulphur fuel oil spread by $0.20 WoW to negative-$6.88/bbl (weaker than its former typical pre-IMO2020 era range of negative-$4-5/bbl).