Maybank IB Research said the surprise move by Opec to cut oil production by 1.66 million barrels per day through to December this year could provide “a much-needed floor to generally soft olefins and derivatives ASPs owing to its close price correlation to crude”.
PETALING JAYA: The average selling prices (ASPs) of Petronas Chemicals Group Bhd
’s olefins and derivatives products have likely found a bottom following modest gains in the first quarter of 2023 (1Q23).
This will be further supported by decision of the Organisation of the Petroleum Exporting Countries and its allies (Opec+) to scale back production through to end-2023, according to Maybank Investment Bank (Maybank IB) Research.
The research firm said the surprise move by Opec+ to cut oil production by 1.66 million barrels per day through to December this year could provide “a much-needed floor to generally soft olefins and derivatives ASPs owing to its close price correlation to crude”.
On the other hand, the research firm anticipates a gloomier outlook for the petrochemical group’s fertiliser and methanol division with ASPs having declined sharply to two-year lows.
“Worryingly for PETRONAS Chemicals, fertiliser and methanol ASPs have effectively completed their post-crisis rout and currently hover at 1Q21 levels, with urea down circa 26% quarter-on-quarter as at end-1Q23,” Maybank IB pointed out in a report.
According to the research firm, lower natural gas prices 1Q23 versus that in 2022 have also allowed European manufacturers to ramp-up nitrogen fertiliser production to pre-2022 run rates. This has further compounded oversupply issues amidst a weak take-up environment.
“On the flipside however, lower natural gas prices could help improve PETRONAS Chemicals’ specialties division margins, though it is unlikely to break even till the second half of 2023 with the near-term outlook remaining challenging.
On the Pengerang Integrated Complex (PIC), Maybank IB said test-runs have restarted since the latest fire incident in October 2022. Full commercial operation date is still slated for late-3Q23.
“Assuming no further hiccups, we estimate PIC may only achieve an annualised plant utilisation rate of about 30% to 35% and is unlikely to be profitable till second half 2024,” it added.
However, it notes that PETRONAS Chemicals’ overall plant utilisation ex-PIC, is expected to be in the 90% to 92% range despite two major statutory turnaround and six minor pitstops scheduled for financial year 2023.
Following a 19% peak-to-through decline over the course of a month post-1Q23 results, the research firm believes that the group’s share price is presently fully valued.
While making no changes to its earnings forecast, Maybank IB has upgraded the stock to a “hold” on a balanced current risk-reward ratio and potentially better second half of 2023.
