2021 is coming to an end in less than a quarter and the highlight in the fourth quarter is none other than the rise in commodity prices, some to a record high such as the coal price as Thailand’s SET Index is set to gain before year’s end.
Mr. Suwat Sinsadok, Managing Director of FSS International Investment Advisory (FSSIA) and a specialist in energy field, stated through “Kaohoon Jor Talad Program” on October 13, 2021, that for the remaining of this year, SET Index could move in sideway-up trends to 1,650-1,700 points, boosted by the energy sector, reopening, and investment in infrastructure from the government and private sector. Moreover, the analyst pointed out that foreign investors should be returning to the Thai stock market from the clarity of Covid-19 situation that is going in a positive direction as economic activities are recovering to near normal, stability in baht currency and positive imports and exports data, thus, seeing the current stage to accumulate stocks.
Amid rising commodity prices, especially in the energy sector, Mr. Sinsadok expected coal to outperform gas and oil due to surging demand and tight supply during the energy crunch from flooding, low production from wind farms, and higher gas price, resulting in producers relying on coal instead.
More importantly, the analyst expected coal to have more longevity and sustainability than oil and gas due to tight supply in coal mining. He explained that due to being unable to increase mining spots, while other mining companies had been shut down and a restriction for mining due to global warming, the coal price would continue to trade at a higher level. The most prominent coal producers in Thailand are Banpu Public Company Limited (BANPU) and The Lanna Resources Public Company Limited (LANNA).
Due to climate change and higher gas prices, especially in the U.K., Mr. Sinsadok believed coal price to remain high until the end of this year. The price will eventually slow down at $150/MT by the middle of next year and to $80 or $100 in the future. However, these prices are considerably high compared to the normal level that coal price usually traded at around $50.
As for the gas business, Mr. Sinsadok praised its sustainability and expected the high gas price, especially in Europe, to continue until at least early next year due to the demand for heating during winter. Gas producers listed in the Thai stock market are BANPU and PTT Exploration and Production Public Company Limited (PTTEP).
In terms of oil-related stocks, Mr. Sinsadok picked PTTEP to benefit the most on the producer side over higher oil and gas prices. But the main point is on the refinery side that has recently shown signs of significant recovery from Covid-19 pandemic as the gross refinery margin rose from less than $1 to $3-4, resulting in an upside of around 30-40% to refinery stocks.
Thai Oil Public Company Limited (TOP) was the top pick for block trade and foreign radar. Meanwhile, Star Petroleum Refining Public Company Limited (SPRC) and Esso (Thailand) Public Company Limited (ESSO) are best for short-term speculation. Bangchak Corporation Public Company Limited (BCP) is an oil play that includes gas station business.
In addition to oil stocks, Mr. Sinsadok pointed out that once Thailand starts to reopen, demand for jet fuel will return and tremendously support refinery stocks’ performance. Among all three refinery stocks, TOP will benefit the most in the recovery of jet fuel due to its low base during Covid-19 pandemic, followed by SPRC and ESSO.
Lastly, Indorama Ventures Public Company Limited (IVL) will dominate the petrochemical sector, seeing potential growth in its core business, revenue recognition from its previous acquisition and more importantly, the foundation in North America that contributes 40% to IVL’s revenue as the economy is booming. Meanwhile, IRPC Public Company Limited (IRPC) is the secondary pick due to having both refinery and petrochemical businesses. PTT Global Chemical Public Company Limited (PTTGC) and The Siam Cement Group Public Company Limited (SCC) trailed behind the first two stocks due to lower margin from the production line in China.
In addition, Mr. Sinsadok recommended three investment themes for each month in 4Q21, stating that energy and commodity play for October, reopening play for November and the banking sector for December and added that the construction sector has a positive outlook throughout the fourth quarter.