BIMB Research said the petrochemical industry appears to have made a fundamental miscalculation about the long-term growth trajectory of China and other emerging markets.
PETALING JAYA: The global petrochemical industry is in its worst downturn in living memory, driven by weak demand, growing overcapacity and a loss of pricing power, according to BIMB Research.
The research house noted weak global manufacturing activity points to low demand from buyers, while new capacity coming onstream is making the situation worse, despite efforts to cut capacity via the closure of older, uneconomical cracker facilities in countries like South Korea and Japan.
“The current downturn is not a conventional cycle; it is a once-in-a-generation reset. As always, only the lowest-cost producers with access to large end markets will survive,” it warned in a sector report.
BIMB Research said industry experts estimated that 12 to 14 million tonnes of surplus ethylene capacity have pushed global cracker utilisation down to 75% to 79%, well below the long-term healthy average of 87%.
Meanwhile, ethylene and propylene are set to see elevated capacity growth over the next two to three years despite evident softening in end demand.
ICIS, an independent commodity intelligence service, has warned that if the ethylene industry continues adding capacity at its historical pace of 6.2 million tonnes per year, utilisation rates will sink into the mid-to-high 70s for the rest of the decade.
That would trigger a brutal outcome, locking the industry into a prolonged downturn.
BIMB Research added that the petrochemical industry appears to have made a fundamental miscalculation about the long-term growth trajectory of China and other emerging markets.
Capacity was built on the assumption of 6% to 8% annual demand growth, but post-Covid-19 and amid China’s slowdown, a more realistic figure is closer to 1% to 4%.
The research house has a “neutral” call on the sector and noted that investors should look out for news of capacity rationalisation among major producers in Europe, Japan and South Korea, which could signal a shift in sentiment toward industry stocks.
On a feedstock basis, BIMB Research wrote that naphtha-based producers will struggle to generate positive margins, while gas-based players should fare slightly better given their lower cost base.
It has a “hold” call on Petronas Chemicals Group Bhd
, with a target price of RM3.25 a share, partly supported by the group’s strong cash pile of RM9.7bil, which provides ample resilience to ride out the challenging market.
“We expect the group to remain in the red for another one to two quarters, though losses should narrow. Its gas-based facilities remain profitable, with fertilisers and methanol still delivering solid margins.
“The real pressure sits in the naphtha-based units, where economics are firmly loss-making. Management has taken the only rational step by mothballing these assets to contain the damage,” the research outfit noted.
BIMB Research also warned that Lotte Chemical Titan Holding Bhd (LCTitan) faces major concerns due to elevated debt, continued losses and depleting cash reserves.
“The group has now suffered 14 consecutive quarters of losses and has burned RM1.1bil in nine months of 2025. With only RM1.15bil cash left, the runway is perilously short.
“At the current pace, LCTitan has barely two to three quarters of liquidity remaining unless a genuine turnaround finally materialises,” BIMB Research stated.
It does not have a call on the loss-making company.
