PTTGC to see better Q3 on higher crude, plant rates: analysts

13 August 2013 06:39 Source:ICIS News

By Nurluqman Suratman

A PTT petrochemical facility in Thailand SINGAPORE (ICIS)--Thailand’s PTT Global Chemical (PTTGC) is expected to post better earnings in the third quarter of the year on the back of higher crude oil prices and increased plant utilisation rates, analysts said on Tuesday.

In the June quarter, the Thai producer reported a net profit of baht (Bt) 4.17bn ($134m), a near-threefold increase from Bt1.51bn in the same period in last year, despite a 20% decline in sales to Bt111.9bn.

Earnings before interest tax, depreciation and amortisation (EBITDA) in the second quarter surged 52% year on year to Bt11.5bn.

PTTGC’s results in the three months to June 2013 were buoyed by lower naphtha costs and higher product prices, especially olefins, according to analysts.

The firm’s high density polyethylene (HDPE) prices averaged $1,443/tonne in the second quarter of this year, up by 4% year on year, while the HDPE spread over naphtha rose by 19% to $585/tonne. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) prices also posted similar year-on-year improvements.

For the July-September period, revenues are expected to improve after “bottoming out in the second quarter”, largely on account of rising crude prices, Songklod Wongchai, a Bangkok-based analyst at Finansia Syrus Securities, said.

PTTGC’s gross refining margin will boost the firm’s earnings in the third quarter, with foreign exchange losses expected to be minimised with the strengthening of the Thai baht, Wongchai said.

In the second quarter, the company booked a Bt1.4bn inventory valuation loss as Dubai crude oil prices fell by 5% year on year to average $101/bbl in the second quarter, weighed by a seasonally weak demand and amid the economic slowdown in the US, China, Europe. The unrest in the Middle East also brought crude oil prices lower, according to the company in its quarterly report.

The baht also weakened by Bt1.8 per US dollar, contributing to foreign exchange losses of Bt2.7bn in the second quarter, it added.

On the aromatics front, PTTGC’s paraxylene (PX) spread will likely continue to remain volatile and weak in the second half of this year, pressured by new regional capacities coming on stream, particularly in China, according to Wongchai.

The firm’s PX spread over condensate fell by 5% year on year to $539/tonne in the second quarter. On a quarter-on-quarter basis, the PX-condensate spread fell by 19%, according to PTTGC data.

“We expect earnings to improve in the third quarter of 2013 before normalising in the fourth quarter. This would be led by improving utilisation rates and higher oil prices,” said Naphat Chantaraserekul, a Bangkok-based analyst with DBS Group Research.

While PTTGC has a scheduled 44-day shutdown at its naphtha cracker, and its low density PE (LDPE) is expected to be down for 105 days in the current quarter, the company’s overall refinery and downstream polyethylene (PE) operations will not be affected, Chantaraserekul said.

Meanwhile, the company has had to undertake a clean-up of some 316 barrels of crude oil that leaked out of its plant in Rayong province, but this should not have a material impact on the company’s earnings, analysts said.

The oil slick has been completely cleaned up, they said, adding that PTTGC’s refinery operations was not disrupted by the clean-up efforts.

“We expect the oil spill to have limited impact on PTTGC, which has a third party insurance for a coverage of Bt1.5bn,” said Wongchai, the analyst from Finansia Syrus Securities.

 ($1 = Bt31.2)

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

By Nurluqman Suratman