Weak PX spreads drag down Thai PTTGC Q2 results: analysts

31 July 2014 07:20 Source:ICIS News

Focus story by Nurluqman Suratman

Map Ta Phut, ThailandSINGAPORE (ICIS)--Thailand’s PTT Global Chemical (PTTGC) is expected to post weaker second-quarter earnings, given declines in aromatics spreads and weaker overall refining margins compared with the first three months of the year, analysts said on Thursday.

The weak refining margins will likely persist for the remainder of the year, they said.

On a year-on-year basis, however, PTTGC’s June-quarter results will be augmented by inventory and foreign exchange gains, as well as oil hedging profits, the analysts said.

“Second-half earnings is expected to be dragged by weak aromatics and the softening gross refining margin (GRM),” Bangkok-based DBS Group Research analyst Naphat Chantaraserekul said.

DBS Group forecasts PTTGC to post a second-quarter net profit of Thai baht (Bt) 5.1bn ($160.4m), down by 19% from the March quarter, but 22% higher compared with the previous corresponding period.

Bangkok-based brokerage KT ZMICO, meanwhile, is projecting a higher second-quarter net profit of Bt6.2bn for PTTGC, 1% lower quarter on quarter, but up 49% year on year because of a low-base effect.

In the first quarter of the year, the Thai petrochemical firm generated a net profit of Bt6.3bn, down 48% year on year despite a 4.3% increase in revenues to Bt141.3bn.

Weaker aromatics margins and plant turnarounds during the period weighed on the company’s profitability in the January-March period compared with the previous corresponding period.

For the second quarter, Chantaraserekul said that PTTGC’s paraxylene (PX) spreads fell to $333/tonne from $386/tonne in the first quarter, as new capacities came on stream.

PTTGC has a total PX capacity of 1.17m tonnes, according to ICIS data. The company's petrochemical base is at Map Ta Phut in Rayong province.

Asia added 3.1m tonnes/year of new PX capacity to its 32m/year tonnes overall capacity in the first half of the year, with another 5.5m/year tonnes of new capacity starting up in the second half, the DBS Group analyst said.

The heavy capacity addition weighed on the regional PX market, with average prices falling to as low as $1,142.50/tonne in mid-March, according to ICIS data.

PX prices in Asia averaged $1,263/tonne CFR (cost and freight) CMP (China Main Port) in the second quarter, down from $1,282/tonne CFR CMP in the first quarter, the data showed.

In contrast, average prices of feedstock naphtha gained to $964.81/tonne CFR Japan in the second quarter from $945.00/tonne CFR Japan in the first quarter, bringing the PX-naphtha spread down to $298.19/tonne in the June quarter from $337/tonne in the previous quarter, according to ICIS data.

KT ZMICO said the “deep plunge” in the product-to-feed margin at PTTGC’s aromatics business will “negate the improved performance at its refinery on sustained market GRM, as well as stock gain and hedging gain” on a quarter-on-quarter basis.

“PTTGC’s quarterly [second quarter] aromatics performance will likely be the worst of the year, with the product-to-feed margin expected to plunge to $83/tonne [down 74% year on year; down 50% quarter on quarter it added.

In the third quarter, Thailand-based Bualuang Securities expects PTTGC’s PX spread to continue falling because of the new capacities built in the region. It, however, is optimistic that the company will be able to post earnings growth on both year-on-year and quarter-on-quarter basis, driven by “greater sales volume and seasonally fatter chemical spreads”.

For the whole of 2014, PTTGC’s net profit is projected to be in the range of Bt28.5 bn-31.6bn, lower than previous forecasts in view of the deterioration of PX spread, according to three brokerages.

PX accounted for 63% of PTTGC’s total aromatics volumes sold in the first quarter of the year. The company’s total aromatics sales volumes in the March quarter stood at 465,000 tonnes, with PX sales at 294,000 tonnes, up 3% year on year but down 5% quarter on quarter.

“We have revised our net profit forecast down by 8.3% to Bt30.6bn in 2014 and by 1.2% to Bt34.8bn in 2015 after lowering the PX-condensate spread assumption for 2014-2015 down by 3.7%,” said Sutthichai Kumworachai, an analyst with Thailand-based brokerage Maybank-Kim Eng.

“We have also lowered the cracker utilisation [estimate] for 2014 from 95% to 92%,” he said.

KT ZMICO, meanwhile, cut its net profit forecasts for PTTGC by 10% to Bt31.6bn in 2014 and by 3% Bt32.8bn in 2015.

DBS Group has the lowest profit forecast for PTTGC among the three brokerages, at Bt28.5bn, which was 23% lower than its initial projection ‘after reducing PX spread assumptions and GRM from both years”, according to Chantaraserekul.

Asia PX price graph

($1 = Bt31.8)

Additional reporting by Pearl Bantillo

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

By Nurluqman Suratman