Fitch: Thai Refinery and Petrochemical Profitability Likely to Remain Healthy in 2016

Stocks and Financial Services Press Releases Wednesday May 25, 2016 16:16
Bangkok--25 May--Fitch Ratings

Earnings of Thailand's refinery and petrochemical producers are likely to remain solid in 2016, as persistently low oil prices support demand, says Fitch Ratings. However, the agency expects margins to soften from 2015 levels, with capacity additions and continuing pressure on middle-distillate products.

Fitch says local demand for refined products, which has better margins than exports, remains strong and has led to higher production. Domestic consumption of refined products in 1Q16 increased about 4% yoy, mainly driven by fuel oil (up 30% yoy), gasoline (up 12% yoy) and diesel and jet oil (up 6% yoy). However, petroleum product exports fell about 16% yoy.

Spreads of petrochemical products continued to improve in 1Q16, supported by higher spreads of polyethylene and aromatic products. Polyethylene-to-naphtha spreads increased to between USD760 per tonne and USD780 per tonne in 1Q16 (1Q15: USD700 per tonne to USD720 per tonne), while paraxylene-to-naphtha spreads improved to about USD390 per tonne (1Q15: USD330 per tonne).

Fitch expects product-to-feed margins for Thailand's petrochemical producers to remain strong in 2016, with producers recording higher margins in 1Q16. However, new committed capacity coming on-stream will likely pressure product spreads for the rest of the year.

Refinery margins, excluding inventory gains and losses, of Thai refiners weakened in 1Q16 on a year-on-year and quarter-on-quarter basis. The softer margins were driven by lower spreads in middle-distillate products, such as diesel, partly due to excess supplies from China. However, this was somewhat offset by improved fuel oil margins on a quarter-on-quarter basis.

Fitch-rated Thai refinery and petrochemical companies posted strong earnings in 1Q16 compared to 1Q15, thanks to strong petrochemical margins and lower inventory losses. EBITDAR of PTT Global Chemical Public Company Limited (AA(tha)/Stable) improved 24% yoy and 48% yoy for Thai Oil Public Company Limited (AA-(tha)/Stable) in 1Q16.

IRPC Public Company Limited's (A-(tha)/Negative) EBITDAR improved significantly from a low base in 1Q15, as the company recorded much larger inventory losses in 1Q15 than in 1Q16. ESSO (Thailand) Public Company Limited (bills of exchange: F1(tha)) also posted substantial improvement in EBITDAR in 1Q16 from the low base in 1Q15.


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