Asia Oil and Petrochemicals --Complex GRMs remain near 13Y high ::Macquarie Research,

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Asia Oil and Petrochemicals
Complex GRMs remain near 13Y high
Refining and petrochemicals update
 The Singapore complex GRM remains robust – near the top end of the 13Y
range - albeit down a modest US$0.2/bbl w/w at US$9.5/bbl, due to lower
gasoline ($17.8/bbl, -$0.5/bbl w/w) and naphtha cracks (-$3.1/bbl, -$2.2/bbl
w/w). In terms of petchem spreads the picture remains mixed with Ethylene-
Naphtha up w/w but remaining near a 9Y low of US$ 166/ton (+2% w/w), PX
inching towards a 9Y high of US$791/ton (+4% w/w), and HDPE-Naphtha at
$446/ton (+4% w/w) around 2010 levels.
Country-specific developments and views
 China: GRMs for Chinese refiners remain disconnected from the Singapore
benchmark – with c.$10/bbl lower realized gasoline cracks - and settled in the
red for a third straight week (-US$1.0/bbl, -US$0.2/bbl w/w). We estimate that
Chinese refiners need c.$4/bbl GRMs to break even at the operating level.
 Thailand: Asian downstream stocks are in the midst of an aggressive selldown.
Thai cyclical names are bearing the brunt of concerns related to the
global macro-economy. A merger-related trading halt from Oct11-20 for PTT
Chemical & PTT Aromatics has also driven aggressive selling. That merged
combination (soon to be renamed PTT Global Chemical) remains our top pick
in Thailand on the basis of growth, valuation and limited regulatory risks.
 Taiwan: Historically, the share prices of FPG tend to outperform when the
overall market declines, thanks to its lower beta, better balance sheet and
attractive dividend yields. We saw a similar pattern last week, with most of the
FPG members outperforming the market by 2-7%, except for FCFC as PT
concerns persist. Supported by good refinery margins and expanding spreads
for PE and MEG, we expect the share prices of FPCC, FPC and NPC to
continue to outperform in a volatile market.
 Japan: Refining margins in Japan were up again by ¥0.1/lt, or 1.5% w/w, as
the product selling price fell more slowly than crude. Among the main
products, the gasoline spread was up by 9% w/w, kerosene up by 5% w/w
and diesel down by 3%. The refining margin is ¥7.6/lt, or ¥3.0/lt (65%) above
the trough of 4/Mar/11, but ¥6.2/lt (45%) below the recent peak on 6/May/11.
Outlook and Strategy
 Thailand - PTT Chemical/PTT Aromatics, as we believe they are well
positioned given their organic growth, valuation, diversification and low
gearing. India - public sector refiners HPCL/BPCL as plays on the robust
Indian domestic demand. Taiwan - FPC and NPC based on their exposure to
PE/PVC and MEG, respectively.