- PE spread recovers on lower naphtha cost. Product spread of PE/PP improved 2.2-5.2%, thanks to a decline 2.5% WoW in naphtha cost. Price movement of PE/PP was mixed with HDPE and LLDPE rising 0.6-1% WoW on tight product availability and LDPE slipping 0.3% WoW to close the gap with LLDPE. With steady ethylene price, LDPE-ethylene spread fell 3.6% WoW to a 14-month low of US$135/t. This will lead to greater production cuts by non-integrated producers in the near term as the slowing economy in China continues to depress PE price as buyers become more cautious in building up inventory.
- PX price inches up WoW. PX price continued to crawl back up 1.6% WoW to US$1,203/t on higher demand from PTA plants that resumed operations after maintenance shutdowns, coupled with lower regional supply from refinery turnarounds. PX-naphtha spread jumped 12.6% WoW on lower naphtha cost. Although PX price will remain weak for the remaining of this year, we see limited downside risk as the current price is already below cash cost. More production cuts will continue in the near term.
- PET/PTA margin depressed by higher feedstock cost. Integrated PET/PTA spread declined 6.5% WoW to a 15-week low of US$280/t due to higher PX and MEG prices (+0.8% WoW). Price of bottle-grade PET also fell 0.7% WoW to US$1,340/t in the SEA market as demand turned sluggish and reports surfaced of large volumes of unsold cargoes in China, according to an industry source.
Investment view: The petrochemical sector index (+2.9% WoW) still outperformed the market (+2.6% WoW). This was led by a jump in IVL’s share price (+8.1% WoW) to a new 52-week high while PTTGC’s share price edged up 1.5% WoW. This has widened the valuation gap between the two stocks. We continue to prefer PTTGC (BUY, TP: Bt85) as the weakest quarter in 1Q14 is past