PETALING JAYA: Petronas Chemicals Group Bhd
(PetChem) may benefit from an expected tightening in global petrochemical supply in 2026 as capacity cuts in South Korea and plant revamp in China are likely to provide price support.
Kenanga Research said the supply squeeze could come from restructuring among South Korean petrochemical producers and China’s plans to overhaul older facilities.
“South Korean petrochemical producers have agreed to cut 25% of their naphtha cracking capacity in response to a structurally weak market,” it said.
The research house said the Chinese government has proposed retrofitting and repurposing facilities aged over 20 years, representing about 40% of China’s capacity.
While not permanent closures, the phased retrofitting could temporarily remove up to 3.3 million tonnes of effective capacity in 2026, or around 1.7% of global supply.
“Although the reforms do not yet indicate a structural decline in China’s petrochemical production, the anticipated retrofitting and upgrades may cause temporary supply tightness in 2026,” Kenanga Research said.
At the same time, China is expected to add about 35.2 million tonnes of polyolefin capacity by 2030, a 31% increase assuming no retirement of older assets.
However, it was noted that the near-term impact from plant upgrades could still trigger a medium-term squeeze in supply.
Kenanga Research highlighted past cycles show how even small supply disruptions could move prices significantly.
“In 2018, polyolefin prices peaked at US$1,400 per tonne due to Asian cracker maintenance losses of just 0.5 million tonnes. In 2022, prices hit US$1,440 per tonne when global linear low-density polyethylene (LLDPE) operating rates dropped to 83% from 92% in 2021,” the research house said.
Nonetheless, the research house is of view that petrochemical prices could stage a meaningful recovery in 2026.
And as for PetChem, this outlook might signal a turning point.
Kenanga Research said the group’s net profit is projected to fall 73% to RM316mil in FY25 before rebounding to RM1.69bil in FY26.
“We revise our FY26 core profit upwards by 51% after adjusting our polyolefin price assumption from US$1,000 to US$1,150 per tonne on the back of better global supply dynamics,” it said.
The research house raised its target price for PetChem to RM5.30 and upgraded the stock to “outperform” from “market perform”.
It said improving chemical prices in FY26 could reduce the likelihood of impairments and mark the start of a cyclical upturn.
