Equity Analysis /

Thailand: Refining & Chemical - GRM fattened; most chemical spreads declined

  • Headline GRM fattened WoW

  • Ethylene and Propylene spreads declined WoW

  • HDPE and PP spreads weakened WoW

Suppata Srisuk
Suppata Srisuk

Equity Research Analyst

Bualuang Securities
31 August 2021

Headline GRM fattened last week, boosted by fatter crack spreads of most product categories. The COVID-19 resurgence in many 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. Demand recovery 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, prices of most chemicals increased, driven by rising feedstock costs and supply tightness. However, sharp increases in feedstock costs squeezed spreads of most chemicals. 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 production line).

Headline GRM fattened WoW

The mean Singapore GRM rose by $0.09 WoW to $2.91/bbl, boosted by fatter crack spreads across most product categories. Increasing air cargo flights and declining supply due to lower utilization rates at North Asian refineries pushed the jet/kerosene and diesel spreads up by $0.63 WoW to $4.77/bbl and by $0.54 WoW to $4.02/bbl, respectively (most positive for TOP). Also, stronger demand for feedstock from Chinese independent refineries boosted the high-sulphur fuel oil spread by $2.46 WoW to negative-$2.80/bbl (better than its former typical pre-IMO2020 era range of negative-$4-5/bbl).