Asia Oil & Petrochemicals - Strong jump in GRM ::Macquarie Research,

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Asia Oil & Petrochemicals
Strong jump in GRM
Refining and petrochemicals update
 Light distillates behind GRM strength: Singapore gross refining margins
(GRM) jumped 27% WoW to nearly US$10/bbl. The key drivers were light
distillates, with gasoline spread increasing by 34%WoW as the driving season
kicks into high gear. Naphtha spread also followed gasoline higher,
increasing by 37% WoW.
 Petrochemical margins get squeezed: With flat or declining product prices
and much higher naphtha feedstock costs, most petrochemical margins were
sharply lower WoW. The margin squeeze could be temporary, however,
given tighter supply amid cracker turnarounds.
Country-specific developments and views
 Thailand: Dominating the news flow in Thailand are headlines pointing to
post-election regulatory changes. While there are potential negatives for the
refiners, like the possible removal of Singapore import parity pricing, there are
also some potential positives in the form of cuts in corporate tax. The
uncertainty is likely to linger until the new government is formed and policies
are formally announced. We have downgraded our target price for PTT to
reflect the increased uncertainty which we feel is most acute for the parent.
While we maintain an Outperform recommendation for PTT, our preference is
with the offspring: TOP, PTTEP and PTTCH/PTTAR (MergedCo). The latter is
less impacted by the negatives given its relatively small exposure to refining.
 Korea: With 2Q11 coming to an end and considering lacklustre share price
movements, we believe most of the negatives on near term earnings are
behind us. Going forward, we remain positive on the Korean oil refining sector
and recommend GS Holdings as our new top pick. LG Chem, S-Oil and SK
Innovation are expected to release 2Q11 earnings in July.