PetChem ready to get back into the game


  • Energy
  • Saturday, 07 Dec 2019

Sazali: I have commodities and I also have specialties. So whatever happens, trade war or anything, we will still have a better lever to play.

DURING an ongoing economic slowdown which has seen petrochemical players producing lacklustre results on depressing margins, PETRONAS CHEMICALS GROUP BHD has been gearing up its battle machines.

After going through major plant turnarounds for the past three years, the chemicals arm of Petroliam Nasional Bhd is now ready to get back into the game in full force.

PetChem has a total of 17 plants and as of 3QFY19, the group has undertaken 16 statutory plant turnarounds – four in 2017, six in 2018 and six as of September 2019.

A new plant is also in the pipeline following the group’s foray into the specialty chemicals with the 100% acquisition of Dutch company Da Vinci Group B.V.

This is an area where PetChem sees huge potential, which it one day hopes to have a contribution of 25% to the group’s profitability in the next 15 years.

Olefins and derivatives is still the main anchor of the group’s revenue at around 60% while fertilisers and methanol comes in at a rate of at least 35%.

PetChem managing director and chief executive officer Datuk Sazali Hamzah believes that there will be a day that specialty chemicals will take over commodities.

“If you look at other players such as Solvay and Arkema, they used to play in commodities. But now, they have forgotten about commodities and are running with specialty, very niche specialty.

“The opportunity if you look at it, can be more than that. You can push hard but of course this is a new play, a new step up for us, a new game.

“Theoretically, you see that this business can grow. There are a lot of options because it serves not only personal care but also coating, automotive, lubrication and additive, ” he tells StarBizWeek in an exclusive interview.

Da Vinci’s targeted ebitda is about €10mil to €15mil but Sazali believes that over time, the business can grow up to a size where it can contribute up to €100mil in ebitda in 15 years or earlier.

Besides the plans of building a new plant, there are also some expansion projects in Netherlands.

“The first thing is to really squeeze the asset to reach to a certain level that the asset can give and that can be realised within next year.

“The new plant we’re planning and the expansion in Netherlands will provide additional capacity. The good thing is the market is waiting for us as well, ” he says, adding that the group would be able to provide some indication of the levels it can achieve by next year.

Once PetChem masters the specialty chemicals business, it will then jump into another area in its series of portfolio that the group is currently evaluating.

Sazali explains that this will be the case, if it can be proven that the new portfolio can make additional contribution to the group’s profitability.

And the aim is to ensure that the group has a balanced portfolio.

“I have commodities and I also have specialties. So whatever happens, trade war or anything, we will still have a better lever to play.

“And we are quite lucky now because our commodities vary. We have polymer, ammonia, urea, aromatics, and others and these provide variety.

“While olefin now is depressed, urea is more stable. Methanol can also be considered stable, ” says Sazali.

The year 2019, up to end-September, has been a rough one for petrochemical players, on the back of weak average selling prices (ASPs), low sales volumes and spreads.

The bearish market has also not been too kind with PetChem, with investors cashing out especially after it recorded a 54.34% dip in net profit for 3Q19.

Since it announced its quarterly results on Nov 13, the counter has declined 8.39% to RM7.10 as of yesterday’s close.

On a year-to-date basis, the share price has dropped 20.81%.

As far as PetChem is concerned, this is not something it is worried about as it places its focus on its core fundamentals of operational and commercial excellence.

Sazali said it is only a matter of time that the group will bounce back.

“Our strategy is, operational excellence is in our hands. At any time when there is a market opportunity, we can ramp up our units even harder. That’s where the game is.

“I’m not so worried about the price. Of course it’s something shareholders are particular about but it will bounce back when the time comes.

“We are well-positioned and I would say we are a top class performer. In terms of growth, we are still proceeding as what we planned, ” he says.

The prolonged trade uncertainties between the United States and China are creating an instability in the market dynamics but it may not necessarily be a disadvantage for PetChem.

The fundamental requirement for the business is related to people and as long as the population continues to grow, the demand will be there.

And the trade war, according to Sazali, is a matter of shock and where the prices hit a balance, which can be seen in the last two quarters at the lower levels.

“That is probably the lowest they can go, hopefully. Then it’s a matter of time before it’s creeping up again.

“China will make what it requires, US will establish where they can supply and that will be balanced.

“And for new investors, they will be very cautious and at this moment, probably they are a bit worried. So, once people stop doing that, it’s our advantage, ” he says.

The industry is taking a cautious measure with the trade war and sanctions in place so companies are playing at very safe volumes which leads to lower demands and tightens the market.

Sazali expects another upward cycle in the next three to four years but the rate would depend on the global situation such as geopolitics and market dynamics.

On the situation of oversupply with the large volumes from China, he said PetChem’s business is impacted but not to the point that plants need to be closed.

“We still have quite a big buffer. I would say over 70% of the players will have to shut their plants before we do and that is difficult to happen.

“So that is our positioning. We are the top tier in terms of margin players in this game. So that’s why our focus is still remain operational excellence and commercial excellence, ” he says.

Meanwhile, Sazali says the Refinery and Petrochemical Integrated Development (Rapid) plant in Pengerang which has just been commissioned, will be an advantage to PetChem as the market will definitely see a shortage of supply.

PetChem is in the process of stabilising the plant and is targeting to complete it by the end of the year as its early start up volumes are still erratic and the quality still fluctuates. While the early start-up products from Pengerang are already in the market, he points out that the time frame in 2019 is too short to see financial contributions.

There might be some in 2020 but Sazali is not expecting much because the current margins are still unfavourable.

“The refinery side, the cracker side, we have commissioned and now we are in the commissioning of our PetChem plant. Some of it is already running.

“But I need to be cautious when Rapid is commissioned. It is not at the best time when margins are really shrinking.

“But this investment is not for one year. This is a 25-year cycle of investment. What I’m predicting, I may be right or wrong I’m not sure, but the next three to four years, this can become a good asset for us, ” Sazali says, adding that the group basically needs to get the plant to run at optimum level to realise its benefit early.

The isononanol plant is another one in Pengerang that is supposed to be commissioned by the end of the year.

It is mechanically completed and has gone through cold circulation. It is now awaiting the process of the refinery crackers to ramp up.

Pengerang also brings about a lot of opportunity for excess molecules and PetChem is looking at what it can do to upgrade it.

“We’re doing the engineering now. When we firm up the price, then it will be interesting.

“At least two projects that we have, have moved as per planned. Next year, probably another two to three projects, ” he said.

As for its aromatics operation in Gebeng, which is a joint-venture with BASF, Sazali says it has already gone into the black in terms of ebitda but is in the red in terms of profitability because it has started paying the loan.

In terms of cash generation, he confirmed that it is already enough to sustain.

On the group’s prospects, Sazali says the performance for 2020 will be about the same was 2019. If luck is on their side, it will be better.

In terms of plant performance and volume numbers, he is confident he will be able to beat this year’s figures.

“You’re talking about 4,700 people running the plant, plus contractors it will be around 5,000 to 10,000 people and not a single person makes a mistake. That is the complexity of the business.

“In the long term, I think it’s a good business to be in because the growth is unlimited, ” he said, adding that PetChem aims to multiply its earnings by at least two to 2.5 times in the next 15 to 20 years.


Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 7
Cxense type: free
User access status: 3
   

What do you think of this article?

It is insightful
Not in my interest

Across The Star Online