Chief executive Mohd Yusri anticipates margins to remain under pressure.
PETALING JAYA: Despite the uptrend in crude oil prices in recent weeks that has led to an improvement in its product prices, Petronas Chemicals Group Bhd
(PetChem) is keeping a guarded outlook, focused on maintaining operational and commercial quality.
Managing director and chief executive, Mohd Yusri Mohamed Yusof, anticipates margins to remain under pressure, with the company having to contend with higher operating costs, slowing global economic growth and increasing competition from new capacities coming on stream, particularly in China and the United States.
“The specialties segment is expected to remain soft, in view of slower global industrial production growth impacting demand across end-markets,” he was quoted as saying in a statement in conjunction with the results release for PetChem’s second financial quarter ended June 30.
The group announced a net profit of RM628mil, which is only a third of the figure achieved in the corresponding quarter of last year, despite revenue having increased by 8.5% to RM7.1bil.
PetChem attributed the growth in turnover to higher sales volumes and inclusion of revenue contribution from a recently acquired subsidiary, which was partially offset by lower product prices.
However, its earnings before interest, tax, depreciation and amortisation (Ebitda) was lower due to a combination of lower product spreads, and higher energy and utility costs, as well as compressed margins, leading to lower earnings.
PetChem also noted on Oct 11 last year the company had successfully completed the acquisition of Sweden-based Perstorp Holding AB.
For the first half of this year (1H23), PetChem registered a net profit of RM1.16bil, which was actually a 70.6% year-on-year (y-o-y) decline compared with the RM3.95bil it had garnered in 1H22.
Similar to its quarterly result, revenue also rose 11% y-o-y to RM14.7bil.
In addition to the aforementioned factors contributing to an increased revenue but lower earnings, it said a higher plant utilisation rate of 89% as compared to 79% in the corresponding six months of last year was due primarily to the absence of statutory turnarounds and lower plant maintenance activities, which resulted in higher production and sales volumes.
The silver lining, though, came when the results were compared on a quarterly basis, as net profit for 2Q23 had risen a commendable 18% from the RM532mil posted for the March quarter, although turnover had slid marginally by 5.9% quarter-on-quarter (q-o-q).
PetChem said 2Q23 saw a lower plant utilisation rate of 82% as compared to 96% in the preceding three months, mainly due to gas supply limitation at subsidiaries PETRONAS Chemicals Methanol Sdn Bhd in Labuan and PETRONAS Chemicals Fertiliser Sabah Sdn Bhd, as well as higher plant maintenance activities resulting in lower production and sales volumes.
“However, net profit was higher mainly due to higher foreign-exchange gains on the revaluation of a loan to a joint operation company,” the group said.
Despite the pullback in earnings, the company has declared an interim single-tier dividend of eight sen per share for the quarter, amounting to RM640mil in respect of the financial year ending Dec 31, 2023.
This brings the dividend per share for 1H23 to 25 sen, identical to the amount declared in the corresponding period of 2022.
Looking further ahead, PetChem’s Mohd Yusri commented that the specialties segment is expected to remain soft, in view of slower global industrial production growth impacting demand across end-markets.
In 2H23, he noted several of the group’s plants are scheduled to undergo statutory turnarounds and maintenance activities.
Hence, a marginal drop in production volume is to be expected.
On the same note, the company also mentioned that utilisation of its production facilities is dependent on plant maintenance activities and sufficient availability of feedstock, as well as utilities supply.
PetChem is anticipating product prices for olefins and derivatives to improve slightly moving forward, supported by restocking activities prior to China’s Golden Week holiday.
“Fertiliser and methanol product prices are forecast to stabilise amid short supply in the region.
“For specialties, we expect weaker sales and earnings development moving forward in view of slower industrial growth impacting demand,” it added.
Separately, Mohd Yusri pointed out that with PetChem having reached the final investment decision to acquire the maleic anhydride (MAn) plant from BASF PETRONAS Chemicals Sdn Bhd in Pahang, and following the upgrade and rejuvenation of the facilities to produce refined MAn, the plant is expected to be operational by the latter half of 2025. He said, “This project aims to expand PetChem’s product portfolio, particularly its derivatives, and enhance its offerings in this field, in line with our two-pronged strategy, which focuses on diversification into derivatives, specialty chemicals and solutions.”
