PETALING JAYA: CGS International (CGSI) Research remains bullish on Petronas Chemicals Group Bhd
(PetChem) after early market indicators showed petrochemical product prices rising faster than expected following the outbreak of the US-Israel-Iran conflict.
The research house has maintained its “add” recommendation and a target price of RM4.45, implying about a 25% upside from the current price of RM3.55, with potential for further upgrades if market conditions continue improving.
A key reason for the positive stance is the sharp jump in selling prices for PetChem’s fertiliser and methanol products.
It noted that urea cargoes were sold at US$650 per tonne, up from about US$490 to US$510 per tonne prior to the conflict, while methanol prices rose to US$400 per tonne from US$320 per tonne previously.
These increases, CGSI Research pointed out, of US$160 per tonne for urea and US$80 per tonne for methanol already exceeded its earlier projections of price gains of US$50 per tonne and US$75 per tonne, respectively, over a six-month period.
“We are confident that both fertiliser and methanol and olefins and derivatives selling prices will exceed our estimates because of the ongoing naphtha, liquefied petroleum gas (LPG) and methane gas feedstock supply disruptions from the Middle East,” it said.
In addition, a cascading effect from reduced operating rates and shutdowns at naphtha- and LPG-based petrochemical plants globally could lead to supply shortages that persist for several months, CGSI Research highlighted.
Consultancy Chemical Market Analytics has warned that a prolonged disruption – particularly if the Strait of Hormuz were to close – could cause petrochemical prices to rise in a “parabolic” manner due to severe feedstock shortages among competitors.
Such a scenario would benefit relatively low-cost producers like PetChem.
Investors, however, remain concerned about potential losses from the Pengerang Petrochemical Co (PPC), which relies heavily on naphtha-based feedstock.
Rising naphtha prices have widened the gap between feedstock costs and downstream product prices, potentially worsening margins.
Nevertheless, CGSI Research believed losses from PPC will remain manageable.
“The output of the naphtha cracker can be exported as-is without being piped to PPC for downstream processing.
“We also strongly believe that PPC will scale down its operating rates to minimise losses and that PPC’s losses will be limited to levels below that in financial year 2025,” it explained.
