Thailand's naphtha-based petrochemical producers to benefit from lower oil prices in 2016

Naphtha-based petrochemical producers in Thailand will continue to benefit from lower oil prices in 2016- as their margins continue to see improvement on low oil prices. However, gas-based producers’ margins have been squeezed, because gas prices had not fallen as much as oil and naphtha prices, according to Fitch Ratings. nationmultimedia.com reported that In 2015, naphtha prices dropped but Thailand's average pooled-gas price declined only 13%. Prices of olefins and polyolefins fell 20-40% and 20-25%, respectively, following the drop in naphtha costs. The earnings before interest, tax, depreciation and amortisation (EBIT) margin of the chemical business of Siam Cement Public Co Ltd, the largest naphtha-based producer in Thailand, increased to about 20% in 2015 from about 8% in 2014. In contrast, the olefins and derivative business of PTT Global Chemical Public Co Ltd, the largest gas-based producer in Thailand, dropped to about 24% from about 26%. Fitch expects polyolefin spreads to naphtha to remain strong for Thai producers in 2016. Although new capacity coming on-stream will likely put some pressure on the spreads, especially for polypropylene. The trend is similar in India with the two predominantly naphtha-based petrochemical operators - Reliance Industries Ltd and Indian Oil Corporation Ltd - benefiting from the lower feedstock prices and strong polymer spreads to naphtha despite falling product prices. RIL's EBIT margins for its petrochemical business improved to 12.2% during the first nine months of the financial year ending March from 8.4% for the same period last year. Similarly, the EBIT margins for IOCL's petrochemical business improved to 29.1% for the same period from 9.1% a year earlier. Margins for GAIL (India) Ltd's petrochemical business, which uses gas as feedstock, have weakened. It suffered EBIT losses of INR6.9 billion (Bt3.6 billion) in the first 9 months of the financial year ending March compared with an EBIT profit of INR2.9 billion a year earlier. Fitch expects the company's 2016 full-year profitability to remain weaker than 2015, although it expects some margin improvement from its successful re-negotiation of prices for certain long-term gas-purchase agreements in December 2015.