FocusThai PTTGC Q1 profit likely hit by shutdowns; better H2 seen

08 March 2012 04:45  [Source: ICIS news]

By Nurluqman Suratman

Mab Ta PhutSINGAPORE (ICIS)--Thailand’s PTT Global Chemical is expected to take a hit on first-quarter earnings because of shutdowns at two crackers at its Map Ta Phut complex, but its financial prospects remain good for the rest of the year, analysts said on Thursday.

The company’s overall chemical margins could remain stable through the second quarter but production will fall because of the downtime at two of its crackers, they said.

“[Its] HDPE (high density polyethylene) spreads are expected to remain somewhat weak due to economic problems in the EU and [the] US with demand growth from China not being enough to convey strong growth globally,” said Pongtham Danwungderm, an analyst at KGI Securities.

HDPE-to-naphtha spread fell to $459/tonne (€349/tonne) in the fourth quarter of last year, down from $463/tonne in the previous quarter, according to PTTGC.

The company is a product of the amalgamation of PTT Chemical and PTT Aromatics in October 2011, making it the flagship petrochemical company of Thai energy giant PTT.

PTTGC reported a Bt2.1bn ($66m) net profit in the December quarter of 2011, with sales at Bt104.4bn. Its full-year earnings surged 84% to Thai baht (Bt) 30bn, as production got a major boost from the start-up of its 1m tonne/year ethane cracker in December 2010, and aided by strong crude prices.

But in end-January 2012, that same cracker had to shut for about two weeks because of a power outage. It resumed operations on 13 February, while a smaller cracker, which can produce 400,000 tonnes/year of ethylene, was taken off line for maintenance on 18 February for regular turnaround that will last up to 29 March.

These shutdowns would likely cap PTTGC’s earnings in the first three months of 2012, said Danwungderm of KGI Securities.

“While higher oil prices may help PTTGC compared with other naphtha-based crackers, the fact is that olefin and polyolefins prices, which represent about 40% of total net profits, remain weak even after Chinese New Year,” said Youssef Abboud, an analyst with Thailand-based brokerage Thanachart Securities.

“Weak demand from China, coupled with the lack of a significant turnaround by major olefin plants are behind the price decline,” he added.

Unlike most of Asian cracker operators that use expensive naphtha, PTTGC relies mostly on cheaper gas for its petrochemical production. This is critical to the company’s expected ability to generate better margins on polymer products, analysts said.

Most analysts expect PTTGC’s earnings to strongly rebound in the second half of 2012, supported by higher chemical price spreads and full utilisation rates at its refinery division.

The company is expected to post a net profit of between Bt31.5bn-38.4bn this year, up 5-28% from 2011, based on forecasts of three analysts.

Stable costs of natural gas feedstock will help PTTGC generate better margins on products like HDPE this year amid sharp increases in the spot prices of naphtha - the main petrochemical feedstock in Asia, said Naphat Chantaraserekul, a Bangkok-based analyst at DBS Vickers Securities.

Last week, Asian naphtha prices climbed to a 46-month high last week, with premium paid on a tendered cargo hitting a record high of $50/tonne.

For PTTGC, about 90% of the company’s olefin production is derived from gas feedstock, making it less prone to suffer when naphtha prices spike along with crude, analysts said.

The US Energy Department earlier this week estimated that West Texas Intermediate crude oil prices will average $106/bbl in 2012, an $11/bbl increase from last year, amid worries over supply disruptions in the Middle East and Africa.

At midday on Thursday, US crude futures were up 33 US cents at $106.49/bbl, while  open-spec naphtha prices increased $10.50-11.50/tonne to $1,092.50-1,095.50/tonne CFR (cost and freight) Japan.

Higher naphtha and crude prices generally leads to increased pricing for downstream polymer products, and translates to better sales and margins for PTTGC, analysts said.

With 70% of global petrochemical producers using naphtha as feedstock, the fall in global cracker utilisation and capacity rates could tighten the HDPE market and push up its prices, according to Chantaraserekul.

“Naphtha-based producers have relied on high butadiene (BD) prices to offset weak spreads in other products but as BD prices fall, this should lead to lower utilisation of naphtha-based crackers, which would tighten HDPE supply,” he said.

Butadiene prices in Asia are on a decline for the third straight week following heavy production cuts at downstream synthetic rubber sector.

KGI analyst Danwungderm said that PTTGC stands a good chance of generating better a HDPE spread if it is able to run all its plants at the target utilisation of 90%.

PTTGC’s HDPE to ethylene spread for the whole of 2012 is expected to increase by 11.3% to $462/tonne, he said.

Prospects are also good on the aromatics front, with paraxylene (PX) spread to feedstock naphtha expected to remain high this year at above $600/tonne on strong demand, given huge capacity additions in downstream purified terephthalic acid (PTA), Danwungderm said.

($1 = €0.76 / $1 = Bt31.72)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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