IVL Advances 3%, Analyst Forecast Strong Western PET Spreads Will Pump Up 3Q21 Earnings
IVL's 3Q21 earnings are expected to be 5.1 billion baht, the analyst estimates, as PET spreads in the West were strong, indicating healthy demand in the region
The share price of Indorama Ventures Public Company Limited (IVL) rose ฿1.50/share or 3.39% to ฿45.75/share as of 15:36 local time in Thailand, with a trading value of 593 million baht.
Krungsri Securities (KSS) estimates IVL’s 3Q net profit at 5.1 billion baht, -39% QoQ, dragged by softer PET and MTBE spreads and delayed start-up of gas crackers. The power outage in China has had minimal impact on IVL’s plant. Maintain BUY, with a target price of 60 baht per share; weak 3Q profit would cap near-term share prices.
PET spreads in Asia softened to US$205/ton from US$235/ton in 2Q but PET spreads in the west were strong at US$600/ton from US$593/ton in 2Q. IVL had contracted two-third of their PET sales in the west since last year, hence, they can capture partial benefits. This also reflects healthy demand in the west but softened in Asia due to the Covid situation. Production volume should edge up to 3.7mt in 3Q, +0.1mt QoQ, driven by IOD (surfactant), while PET sales volume should be flat QoQ. MTBE spreads dropped to US$90/ton QoQ from US$290/ton in 2Q dragged by rising butane and methanol feedstock prices.
IVL sells MTBE in Latin America, which had strict lockdowns in 3Q, and could not pass on higher feedstock prices. MTBE spreads remain at US$80-90/ton in October. IVL should book 1.8 billion baht stock gain in 3Q, same as 2Q. IVL expects to start gas crackers in November.
IVL has PET and fiber operations in Guangdong China, which account for 4% of IVL’s capacity. China has experienced some power outages, but mostly in the north-east region, which has affected some polyester plants. China has 10mt out of 26mt global PET capacity and 22mt out of 50mt global fiber capacity. China exports 20% of their PET and 50% of their fiber production. Power shortage should reduce China’s exports and support PET spreads in the west. IVL would indirectly benefit as two-third of its PET production is in the west. US and Europe are net PET importers of 800ktons (4.0m tons demand) and 1.2m tons(3.5m tons demand) respectively. Last but not least, PET spreads are getting stronger in October following some production disruption in China.
The commercial start-up for gas crackers should contribute an additional US$30m/quarter to IOD’s EBITDA (US$99million in 2Q) based on US$600-700/ton ethylene spread in the US. MEG volume should increase after catalyst change (60days) in 2Q, which should mitigate the softened MTBE spreads.