PETALING JAYA: Petrochemical prices are expected to remain strong until the end of the third quarter of the year, which will be good news for local petrochemical companies in the short term.
However, the rise in selling prices is forecast to dissipate in the subsequent quarters, due to the introduction of new capacities that will lift available supply.
According to CGS-CIMB, the increase in supply will come from Asian petrochemical plants in the fourth quarter of the year, in addition to the commissioning of new plants, particularly in China.
“This is why we retain our underweight call on the sector.
“Petrochemical prices may remain strong for as long as six weeks, which is the time required for the agricultural planting season in China to be completed, for the hurricane-impacted US plants to potentially resume full production, and for the seasonal polyester demand strength to ease, ” said CGS-CIMB.
The research house noted that polymer prices in Asia have done well in the past one to two weeks on the back of tight regional supply, coupled with the onset of peak season in China for the production of agricultural-related polymers as well as autumn and winter fabrics.
Additionally, Hurricane Laura, which hit the US Gulf Coast on Aug 27 to Aug 29, has caused the temporary shutdown of all refineries, crackers and various downstream petrochemical units.
With no surplus US polymer for export, the price arbitrage to Asia has also closed, as the rise in US ethylene and polymer prices has made it uncompetitive in Asia.
CGS-CIMB said Lotte Chemical Titan Holdings Bhd’s (LCT) Malaysian operations are expected to benefit in the third quarter from the persistent strength in polyethylene and polypropylene-naptha spreads since March, as well as the fall in naphtha prices in the current week.
On the flip side, the shutdown of LCT’s plants in the US may raise the share of losses that LCT is already booking.
“The US plants will not be able to book revenues needed to offset depreciation and interest expenses. In the first half of the year, LCT booked RM60mil as its share of associate losses, or 57% of its core net loss for the period, ” said CGS-CIMB.
As for Petronas Chemicals Group Bhd (PCG), the short-term outlook for the group in the third quarter has also improved, thanks to higher polyethylene, monoethylene glycol and methanol selling prices.
Separately, the commissioning of its Pengerang refinery, naphtha cracker and petrochemical plants is reported to be delayed to late first quarter of 2021, from early-2021 previously.
“This is unfortunate news, as PCG’s plants are ready for action but unable to generate returns, ” said CGS-CIMB.
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