Thailand petrochemical firms eye better '21 amid oil-led price spikes

Author: Nurluqman Suratman

2021/03/02

SINGAPORE (ICIS)--Thailand’s petrochemical firms are expected to generate better earnings in 2021 on the back of rising product prices, but oversupply in China and slow growth in some end-user markets in Asia could temper profitability.

These enterprises saw a strong rebound in earnings in the second half of last year, although at varying recovery pace from the pandemic-induced slump in the first half - depending on each company’s level of integration with downstream operations, European credit ratings agency Fitch Ratings said on Tuesday.

PTT Global Chemical, the petrochemical arm of Thai energy firm PTT, posted strong fourth-quarter earnings as product prices recovered, while Indorama Ventures Ltd (Ltd) swung to a net profit on the back of stronger production volumes and contributions from its polyethylene terephthalate (PET) business.

Firms with higher exposure to petrochemical businesses, such as PTTGC and its affiliate integrated petroleum and petrochemicals producer IRPC benefitted from much stronger petrochemical margins relative to refinery margins in the second half of 2020, compared with companies with large refinery operations, including Thai Oil and Esso (Thailand), according to Fitch.

Thai Oil operates the largest oil refinery in Thailand at Chonburi with a refining capacity of 275,000 bbl/day.

Esso (Thailand) operates a 174,000 bbl/day refinery in Sriracha, Chonburi which is integrated with a 500,000 tonne/year aromatics plant making primarily paraxylene (PX), according to its website.

With the expected recovery of industrial and business activity amid the coronavirus vaccine roll-outs, ushering in stronger end-market demand, these companies can look forward to better earnings in 2021, Fitch said.

“Demand for food packaging, cleaning and hygiene products should remain strong but growth is likely to decelerate in 2021 after demand spiked in 2020, while polyethylene terephthalate (PET) bottle sales are likely to recover slowly after plummeting in 2020 due to the shift to working from home and the cancellation of public events,” it said.

Rebounding downstream automotive and construction sectors are likely to benefit polypropylene (PP) producers, Fitch said.

“Nevertheless, large-scale additional petrochemical capacity in 2021, mainly from China, is likely to exacerbate the existing oversupply, putting pressure on product spreads, especially for the commodity petrochemicals,” it said.

Large olefins capacity additions are expected to keep the spike in chemical prices in check, Japan’s Nomura Global Markets Research said in a note in late January.

“We are cautiously optimistic on the chemicals price outlook for 2021, with a 15% year on year increase in prices on an average basis,” it said.

"Our cautious view on olefins hinges on excess capacity expansion in the US and China driven by cheap feedstock and desire for self-sufficiency, respectively," Nomura said.

Fitch also expects the rebound for most product spreads in 2021 to be volatile and well below the longer-term historical average.

“Thai refinery and petrochemical companies will continue to diversify their businesses into high-value products and specialty chemical businesses, which have been more insulated than commodity products during the downturn due to more resilient end-market demand,” it said.

“However, the contribution from these high-value products is likely to remain low, at least in the medium term,” Fitch added.

Focus article by Nurluqman Suratman

Photo: A PTTGC facility (Source: PTTGC)

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