Lower plant utilisation weighs on PetChem's prospects

PETALING JAYA: Macro and operational challenges resulting in lower plant utilisation may impact chemical manufacturer PETRONAS Chemicals Group Bhd’s (PetChem) first quarter of the financial year 2025 (1Q25), although higher urea prices may support the company’s fertiliser and methanol division’s forecast.

Kenanga Research, which recently met the company’s management, said PetChem “is poised for a challenging 1QFY25 as overall plant utilisation is projected to fall below 90% from a quarter before due to unplanned plant downtimes”.

The research house revised its assumption on overall plant utilisation to 89% from 91% in a report, due to downtime at 50%-owned Pengerang Petrochemical Co (PPC) as a result of downtime at Petronas Refinery and Petrochemical Corp, the plant’s feedstock supplier. The PPC plant has been idle since February.

“As a result, we anticipate PPC’s utilisation rate to fall below 50% in 1QFY25, indicating that PPC will likely sustain its losses. Additionally, the age of its older facilities may increase the risk of unplanned shutdowns,” it pointed out, noting that the previous assumption on plant utilisation assumed the PPC plant’s partial shutdown and a potential shutdown in one of the complexes of its olefins and derivatives (O&D) complexes.

“To illustrate, every month additional outage in the whole O&D plant portfolio may lower our overall utilisation by 3%, which will reduce our net profit forecast by 13%,” it said, noting that higher natural gas prices, a key feedstock for PetChem’s urea production, could lead to the company scaling back output, especially if demand for it remains strong.

It noted that natural gas prices would likely be higher year-on-year as prices ranged from US$1.6/million British thermal units (mmbtu) to US$3.2/mmbtu in 2024.

Kenanga Research said PetChem’s management expects urea prices, which rose to US$394/tonne at the peak, to stabilise from April 2025 on China’s relaxing of urea export restrictions. “We maintain our conservative forecast of US$290/tonne, though continued strong fertiliser demand may pose upside risks” it said.

The research house has maintained its “outperform” rating on the stock but revised the share price to RM4.70 from RM5.07 on a sum-of-parts-driven price-to-book value (PBV) method to account for the near-term earnings risks tied to temporary plant downtimes.

It believes the PBV ratio discount due to concerns over recent projects such as PPC and the specialty chemicals division, “is unwarranted”, as breaking down the book value, PetChem’s legacy assets accounted for 56% of book value based on FY24 results, with the remainder tied to PPC and the specialty chemicals division.