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Petrochemical and Refinery

High cotton price boosts IVL's share price Overweight

Petrochemical and Refinery

- Cotton price makes two-year new high

During the recent week, cotton price has risen to 91.56 cent/lb, making the two-year

new high, thus signaling an increase in price of alternative product like polyester fiber in

near future. This is likely to benefit polyester fiber producers like IVL, as its

polyester fiber business makes up 20% of total sales volume. During the recent year,

IVL’s PET-PTA-MEG and PTA-Px spreads (IVL's main products; making up 50% and 30%

of total sales volume, respectively) have increased to -US$103/ton and US$210/ton,

respectively. Olefin spread (PTTGC, IRPC) has also been rising; HDPE-Naphtha and

LDPE-Naphtha spread have widened to US$616/ton and US$676/ton, respectively.

Similarly, spreads of specialty downstream products, PP-Naphtha, PS-Naphtha and ABSNaphtha

(IRPC’s main products, making up 30-40% of total sales volume) have risen to

US$561/ton, US$816/ton and US$951/ton, respectively. For aromatics products

(TOP, PTTGC, ESSO, IRPC), spreads have been declining as a result of growing supply

in 2014. Recent Px-Naphtha and Bz-Naphtha spreads are US$322/ton and US$339/ton,


- Sector's 1Q14 net profit to rebound

We project that the sector’s 1Q14 would rebound and grow from 4Q13, as petrochemical

spread has been increasing, especially olefins spread, thus benefiting PTTGC and IRPC.

IVL’s earnings result is expected to reverse to profit thanks to the following factors: 1)

PTA spread has risen averagely by US$10/ton (YTD) from December 2013 average

spread of US$85/ton. Meanwhile, PET and MEG spreads have stayed close to 4Q13. 2)

PTA sales volume is likely to grow as the PTA factory in Europe has resumed working. 3)

PET sales volume is projected to rise after the polyester fiber factory in Indonesia has

started its commercial run in January 2014. Overall, IVL’s FY2014 net profit is projected

to leap by 188.4%yoy.

- Speculate IVL

We recommend buying and speculating IVL(FV@B23.1). Cotton price has made the twoyear

new high, so polyester fiber price would also rise. The sector’s top pick is


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