The integrated chemicals producer indicated that it is anticipating a stable-to-slightly-weaker outlook for its product prices amid a soft global economy.
PETALING JAYA: Petronas Chemicals Group Bhd
(PetChem) continues to face limited upside to its earnings due to the tepid outlook for its product prices.
In a recent analysts’ briefing, the integrated chemicals producer said it is anticipating a stable-to-slightly-weaker outlook for its product prices amid a soft global economy, though this would be partially mitigated by supply constraints.
Kenanga Research said the sentiment expressed by PetChem’s management was in line with its view that the downstream segment of the oil and gas industry still lacked catalysts.
Maintaining its “market perform” call on PetChem, the brokerage kept its target price for the counter at RM6.28.
Kenanga Research said the key takeaways from the briefing were that polyethylene prices were expected to be stable, while the methanol market would be slightly weaker in the second half of this year, and urea prices would likely remain in hisotrical ranges.
“Among polyethylene products, the outlook of low-density polyethylene still appears to be the firmest in the near term. This is due to high plant turnaround activities globally and limited new capacity in China,” it said.
“The outlook of high-density polyethylene is slightly weaker over the near term due to incoming new capacity in the Asean region and China,” it added.
For the methanol market, PetChem expected prices to range from US$330 to US$355 per tonne in the second half of 2024, weaker than the average US$355 per tonne in the first half of the year due to the addition of multiple new capacities coming online in South-East Asia and the United States.
“Additionally, weak global economic growth continues to weigh on the demand for methanol. In China, coal-to-methanol plants are operating at low utilisation rates due to high coal cost, which provides slight support to methanol prices,” Kenanga Research said.
Meanwhile, it noted that while China’s export restrictions on fertilisers are still in place, the demand for urea had been hampered by lower purchase tender sizes from India in the first half of 2024, largely due to weather conditions.
“Hence, we expect urea prices to range close to US$322 per tonne, which is its 10-year historical average,” Kenanga Research said.
On the supply side, it noted, India was expected to add one million tonnes of urea production capacity, thereby reducing the need for significant increases in urea imports.
“PetChem expects ammonia prices to remain stable, as demand recovery from the industrial sector is still tepid coupled with flattish cost of feedstock, particularly natural gas,” it said.
Despite the uninspiring outlook, Kenanga Research said it still liked PetChem due to signs of bottoming of polyolefin prices, supported by crude prices; its specialty chemicals division potentially seeing trough earnings in 2023, with gradual recovery expected in 2024; and its superior margins against its peers due to a favourable cost structure.
