Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
Refining margins rebounding; higher propane price may lead to naphtha spread recovery
Refining margins are rebounding. In particular, the previously weak gasoline margin is widening. Current forecasts
call for increasing margins thanks to US refiners’ regular maintenance, and even considering seasonality, US refiners’
utilizations are far lower than in the past. Furthermore, gasoline inventory has turned downward, due mainly to US
refiners’ continued gasoline production cuts, in addition to declining US refining utilizations. Instead of gasoline, US
refiners beefed up the production of middle distillates but their inventories remain low. In all, we expect refining
margins to continue to expand for the foreseeable future.
Propane merits our special attention. The price of US propane has turned around. Price volatility remains high but
we believe the price has bottomed out given the stabilizing US propane inventory. Besides, Aramco’s recent hike of
Asian propane CP by USD50/tonne to USD490/tonne should boost propane prices further. We believe higher
propane prices will naphtha prices recover. Propane prices rise in the winter on strong seasonality, driving NCCs to
opt for naphtha instead. Since 2H18 however, propane prices have collapsed, and NCCs’ naphtha demand faltered as
a result, which led to naphtha price weakness. As such, propane price hikes should help the naphtha spread to
recover going forward, and affect gasoline prices.
Meanwhile, middle distillate margins remain strong. Inventories in the US and Europe are stable, and demand is
likely to pick up further as the IMO’s 2020 sulfur cap comes into effect in 2H19. A further increase in middle distillate
margins could accelerate the recovery of refining margins for Korean refiners, since kerosene and diesel represent
over 50% of their refining earnings.
Refining/Chemical/Utility Kang Dong-jin +822-3787-2228 [email protected]
Major issues and conclusions - Refining margins rebounding, led by gasoline and naphtha; middle distillate margins still strong. - Korean refiners provide a great bargain-hunting opportunity considering widening refining margins and a
strong PX spread. - Whether the PE/MEG spreads will continue to expand remains to be seen. - We are focusing on propane (LPG), propylene, and PP price trends as they could lead to a peak-out of PDH
players’ profitability.
Industry and stock outlook - Refining margins to improve gradually, helping the refining sector to stage a rebound. - For chemicals, conditions may vary by product.
Refining/Chemical OVERWEIGHT
Sharp rebound of refining margins
Industry Note March 6, 2019
2
INDUSTRY NOTE
Fig 1. Utilizations at US refineries Fig 2. Refining margins rebounding sharply
70
75
80
85
90
95
100
1 2 3 3 4 5 6 7 8 9 10 11 12
2016 2017 2018 2019(%)
-9
-6
-3
0
3
6
9
12
15
2016 2017 2018 2019
Refining marginComplex refining margin
(USD/bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Petronet, Hyundai Motor Securities
Fig 3. Middle distillate margins increasing Fig 4. Light distillate margins improving
6789
10111213141516
1.02 1.09 1.16 1.23 1.30 2.06 2.13 2.20 2.27
(USD/bbl)
-12-10
-8-6-4-202468
1.02 1.09 1.16 1.23 1.30 2.06 2.13 2.20 2.27
(USD/bbl)
Source: Petronet, Hyundai Motor Securities Source: Petronet, Hyundai Motor Securities
Fig 5. Aramco raises Asian CP by USD50/tonne in March Fig 6. US propane price bottomed out
0
200
400
600
800
1,000
1,200
1,400
12 13 14 15 16 17 18 19
Price gapNorth America spot LPG/Mont Belvieu LSTArab Gulf LPG posted price
(USD/tonne)
200
300
400
500
600
17.1 17.7 18.1 18.7 19.1
($/톤)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
(USD/tonne)
600
500
400
300
200
17.1 17.7 18.1 18.7 19.1
3
Kang Dong-jin +822-3787-2228 / [email protected] Refining/Chemical/Utility
Fig 7. Naphtha, propane prices move in line with each other Fig 8. US propane inventory gradually declining
-200
-150-100-50
050100150
200250300
0
200
400
600
800
1,000
1,200
1,400
09 10 11 12 13 14 15 16 17 18 19
Naphtha-LPG price gap (R)Naphtha C&F Japan spotArab Gulf LPG posted price
(USD/tonne) (USD/tonne)
Source: Bloomberg, Hyundai Motor Securities Source: EIA, Hyundai Motor Securities
Fig 9. US gasoline inventory falling Fig 10. US DFO inventory remains stable
190,000
210,000
230,000
250,000
270,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range2019 Average (2015-2018)2018
('000 bbl)
100,000
120,000
140,000
160,000
180,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range
2019 Average (2015-2018)
2018
('000 bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
Fig 11. Europe’s fuel oil inventory down Fig 12. Europe’s gasoline inventory plunging
0
500
1,000
1,500
2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range
2019 Average (2015-2018)
2018
('000 bbl)
0
300
600
900
1,200
1,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range2019 Average (2015-2018)2018
('000 bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
4
INDUSTRY NOTE
Fig 13. Europe’s gasoline inventory stable Fig 14. Singapore’s light distillate inventory remains high
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range
2019 Average (2015-2018)2018
('000 bbl)
5,000
10,000
15,000
20,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range
2019 Average (2015-2018)
2018
('000 bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
Fig 15. Singapore’s middle distillate inventory stable Fig 16. Heavy, sour Mars crude’s premium increasing
3,000
8,000
13,000
18,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015-2018 range2019 Average (2015-2018)2018
('000 bbl)
-10
-5
0
5
10
15
14.1 14.7 15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
(USD/bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
Fig 17. Western Canada heavy sour crude’s discount narrowing Fig 18. Midland discount nearing zero
-55
-45
-35
-25
-15
-5
5
15
14.1 14.7 15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
(USD/bbl)
-25
-20
-15
-10
-5
0
5
10
15
14.1 14.7 15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
(USD/bbl)
Source: Bloomberg, Hyundai Motor Securities Source: Bloomberg, Hyundai Motor Securities
5
Kang Dong-jin +822-3787-2228 / [email protected] Refining/Chemical/Utility
Chemical spreads partly improve but ethylene’s temporary price rise comes to an end; PE and
MEG spreads low vs. strong PX spread; US propylene price falls sharply while caustic soda
price rebounds
The price of ethylene fell by USD60/tonne WoW last week, despite naphtha price increases. We believe the rising ethylene prices have come to an end, because PE and MEG prices did not show a meaningful rebound.
Synthetic resin: PE prices rose but naphtha prices rose as well, keeping the spread improvement to a minimum. We
especially note the weakness of the PP spread. The PP spread slightly improved WoW last week but narrowed by USD30/tonne compared with two weeks earlier. The US propylene price sharply fell, making it USD130/tonne cheaper vs. Asian propane prices. The price of PP in the US, which used to trade at a premium of up to USD400/tonne over Asian PP prices, has now come down close to Asian PP prices. With propylene prices expected to remain weak as its US inventory hit a three-year high, a rise in PP prices appears unlikely. Coupled with Aramco’s CP increase, this could weigh on product prices at Asian PDH players. The narrowing PP spread is also an unfavorable factor for NCCs. Meanwhile, the ABS spread has recovered from the end of last year. PVC inventory remains low.
Chemical fiber: The PX spread remains strong. We believe the spread will remain over USD500/tonne given tight
supply in 1H19. In contrast, the MEG spread is still weak. The MEG spread improved by USD26/tonne WoW last week but we do not see it as a sustainable trend in the mid to long term considering its high inventory level and increasing capacity.
Others: The caustic soda spread is rebounding, from the bottom of USD296/tonne seen recently to USD356/tonne.
We believe the caustic soda spread will remain strong for the time being as the BIS certification issue is expected to be resolved in March.
Fig 19. Ethylene prices rebounded but US price weak Fig 20. HDPE spread
0
300
600
900
1,200
1,500
1,800
13.1 13.7 14.1 14.7 15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
USG Korea(USD/MT)
Source: Cischem, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
6
INDUSTRY NOTE
Fig 21. LDPE spread Fig 22. HDPE price trend: US vs. Korea
0
300
600
900
1,200
1,500
1,800
14.10 15.4 15.10 16.4 16.10 17.4 17.10 18.4 18.10
USG Korea(USD/MT)
Source: Cischem, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
Fig 23. US propylene inventory trend Fig 24. US propylene price sharply down
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
NWE USG Korea(USD/MT)
US Propylene pricesharply decline
Source: EIA, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
Fig 25. PP price trend: US vs. Korea Fig 26. Will PP spread continue to decline?
0200400600800
1,0001,2001,4001,6001,8002,000
15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
Korea(FOB) USG(FOB)(USD/MT)
Source: Cischem, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
7
Kang Dong-jin +822-3787-2228 / [email protected] Refining/Chemical/Utility
Fig 27. ABS spread Fig 28. MEG spread
Source: Cischem, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
Fig 29. Caustic soda price rebounding Fig 30. PX spread remains strong
0
100
200
300
400
500
600
700
800
15.1 15.7 16.1 16.7 17.1 17.7 18.1 18.7 19.1
(USD/tonne)
Source: Cischem, Hyundai Motor Securities Source: Cischem, Hyundai Motor Securities
Refiners offer a great entry point amid PX strength and stronger refining margins; for
chemicals, we like LG Chem, Hanwha Chem, Kumho Petro, and Lotte Fine Chemical
We expect negative sentiment on refining stocks to dissipate, considering the recovery of refining margins, rising oil prices, and the strong PX spread. The IMO’s 2020 sulfur cap regulation is an ongoing issue but will likely be implemented. We continue to recommend bargain-hunting refining shares. Meanwhile, chemical companies need to reduce exposure to PE, MEG and PP. Because of oversupply, we do not expect the PE/MEG/PP chains to rebound any time soon. We continue to present LG Chem (051910.KS, BUY) as our chemical sector top pick and Hanwha Chemical (009830.KS, BUY), Kumho Petrochemical (011780.KS, BUY), and Lotte Fine Chemical (004000.KS, BUY) as our stocks of interest. LG Chem, as the world’s biggest ABS producer, is set to enjoy a rebound of chemical earnings on the back of a recent ABS spread recovery. As for Hanwha Chemical, recovering PVC and caustic soda prices as well as its photovoltaic business will contribute to earnings growth. Kumho should benefit from favorable BPA market conditions. Its synthetic rubber business has bottomed out and an increased capacity for NB latex should help boost earnings.
8
INDUSTRY NOTE
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
18/07/17 BUY 240,000 -18.4 -15.8 18/07/30 BUY 240,000 -18.7 -15.0 18/08/21 BUY 240,000 -18.8 -15.0 18/09/11 BUY 240,000 -18.5 -15.0 18/09/17 BUY 240,000 -18.2 -13.1 18/09/28 BUY 270,000 -19.5 -16.5 18/10/22 BUY 270,000 -20.2 -16.5 18/10/26 BUY 270,000 -21.0 -16.5 18/11/05 BUY 270,000 -22.7 -16.5 18/11/23 BUY 270,000 -24.3 -16.5 18/12/14 BUY 270,000 -26.4 -16.5 19/01/08 BUY 240,000 -24.2 -21.5 19/02/01 BUY 240,000 -23.5 -20.0 19/03/06 BUY 240,000 - -
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
18/07/03 BUY 165,000 -35.3 -29.7 18/07/17 BUY 165,000 -33.1 -29.4 18/07/27 BUY 165,000 -30.5 -23.9 18/08/24 BUY 165,000 -29.6 -23.9 18/09/11 BUY 165,000 -27.7 -16.7 18/10/04 BUY 190,000 -31.1 -28.2 18/10/22 BUY 190,000 -31.7 -28.2 18/10/29 BUY 190,000 -35.9 -28.2 18/11/23 BUY 160,000 -34.5 -28.1 19/01/08 BUY 140,000 -30.4 -28.9 19/01/22 BUY 140,000 -30.0 -28.6 19/01/29 BUY 140,000 -28.3 -25.0 19/02/15 BUY 140,000 -27.7 -22.1 19/03/06 BUY 140,000 - -
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
18/02/20 BUY 530,000 -14.0 -10.5 18/03/08 BUY 530,000 -16.7 -10.5 18/04/06 BUY 590,000 -29.3 -25.7 18/04/24 BUY 590,000 -29.9 -25.7 18/05/03 BUY 510,000 -28.6 -22.6 18/07/10 BUY 480,000 -28.6 -25.1 18/08/01 BUY 480,000 -33.0 -25.1 18/10/01 M.PERFORM 310,000 -14.1 -17.1 18/10/22 M.PERFORM 310,000 -14.4 -18.1 18/11/02 M.PERFORM 300,000 -5.1 -7.2 18/11/23 M.PERFORM 300,000 -7.0 -14.5 19/01/10 M.PERFORM 300,000 -6.1 -14.5 19/02/13 M.PERFORM 300,000 -4.1 -14.5 19/03/06 M.PERFORM 300,000 - -
0
50
100
150
200
250
300
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
SK InnovationTarget price
0
20 40 60 80
100
120
140
160
180
200
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
S-OilTarget price
0
100
200
300
400
500
600
700
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
Lotte ChemicalTarget price
9
Kang Dong-jin +822-3787-2228 / [email protected] Refining/Chemical/Utility
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
18/07/25 BUY 520,000 -27.8 -24.8 18/08/21 BUY 530,000 -32.4 -29.4 18/09/17 BUY 530,000 -32.1 -29.4 18/10/02 BUY 530,000 -34.2 -29.4 18/10/22 BUY 530,000 -34.5 -29.4 18/10/26 BUY 530,000 -34.6 -29.4 18/10/29 BUY 530,000 -34.9 -29.4 18/11/23 BUY 530,000 -34.8 -29.4 18/12/14 BUY 530,000 -34.7 -29.4 19/01/04 BUY 530,000 -34.6 -29.4 19/01/22 BUY 530,000 -34.3 -28.5 19/01/31 BUY 530,000 -33.9 -28.3 19/02/15 BUY 530,000 -33.3 -25.6 19/03/06 BUY 530,000 - -
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
18/01/11 BUY 125,000 -17.2 -14.0 18/02/02 BUY 136,000 -31.8 -24.6 18/02/20 BUY 136,000 -33.1 -24.6 18/03/08 BUY 136,000 -31.2 -24.6 18/04/30 BUY 140,000 -24.4 -20.7 18/06/21 BUY 140,000 -22.2 -16.4 18/08/06 BUY 153,000 -36.6 -31.4 18/10/17 BUY 130,000 -34.1 -33.4 18/10/22 BUY 130,000 -34.0 -28.0 18/11/05 BUY 130,000 -32.6 -26.2 19/01/22 BUY 130,000 -32.4 -26.2 19/02/07 BUY 130,000 -32.5 -26.2 19/02/15 BUY 130,000 -31.9 -23.5 19/03/06 BUY 130,000 - -
Investment rating and target price history Two-year price chart
Date Rating TP Difference (%)
Average High/Low
17/10/26 BUY 42,000 -25.2 -21.8 17/11/13 BUY 42,000 -26.6 -21.8 17/11/24 BUY 42,000 -25.5 -15.0 18/01/24 BUY 44,000 -22.7 -17.7 18/02/20 BUY 44,000 -23.0 -17.7 18/02/23 BUY 44,000 -24.0 -17.7 18/03/08 BUY 44,000 -29.7 -17.7 18/05/15 BUY 40,000 -42.9 -28.6 18/08/16 BUY 30,000 -38.5 -29.0 18/11/14 BUY 22,000 -10.8 -1.1 19/01/22 BUY 22,000 -8.2 3.2 19/02/15 BUY 22,000 -7.7 5.5 19/02/21 BUY 31,000 -24.3 -23.2 19/03/06 BUY 31,000 - -
0
100
200
300
400
500
600
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
LG ChemTarget price
0
20 40 60 80
100
120
140
160
180
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
Kumho PetrochemicalTarget price
0
5
10
15
20
25
30
35
40
45
50
17.03 17.06 17.09 17.12 18.03 18.06 18.09 18.12 19.03
(KRW ‘000)
Hanwha ChemicalTarget price
10
INDUSTRY NOTE
Compliance note • The author(s) of this report does(do) not have any interests in the company(ies) covered herein. • Hyundai Motor Securities has not disclosed the material contained in this report to any institutional investor or third party prior to its publication. • The author(s) of this report does(do) not own more than 1% of the shares of the company(ies) covered in this report. • Hyundai Motor Securities has not taken part in securities issuance (DR, CB, IPO, and market making) of the company(ies) covered in this report as lead manager for
the past six months. • This report accurately reflects the author(s)’s professional views and was written without any undue external influence or interference.
Investment rating Hyundai Motor Securities offers three sector investment ratings based on six-month forward fundamentals and share price outlook.
• OVERWEIGHT: Sector-wide fundamentals and share prices are expected to turn up. • NEUTRAL: No meaningful fundamental improvement is expected. • UNDERWEIGHT: Sector-wide fundamentals and share prices are expected to turn down.
Hyundai Motor Securities offers three company investment ratings based on the relative return expected in the following six months, based on the closing price on the date of rating declaration.
• BUY: Excess return of +15%p or more • MARKETPERFORM (M.PERFORM): Excess return of between -15%p and +15%p • SELL: Excess return of -15%p or less
Stock ratings distribution (January 1-December 31, 2018)
Rating Count % of rating category BUY
MARKETPERFORM SELL
147 12 0
92.45 7.55 0.0
• This report has been prepared for informational purposes only and thus may not be reproduced or distributed without the prior written consent of Hyundai Motor Securities. • The information and statistical data contained herein were taken from sources believed to be reliable but in no way can be guaranteed and, therefore, final investment decisions should be
made based on each client’s own judgment. • This report cannot be used as evidence in any legal disputes related to the client’s investment de cisions.