Kenanga Research is neutral on Petronas Chemicals Group Bhd’s (PetChem) prospects as some of its products are projected to have better prices this year, while other markets to remain challenging for the group.
This is the conclusion by the research house post-virtual call with PetChem, it said in its Company Update today (Jan 26).
The research house said the leading integrated chemical producer anticipated stronger polyethylene (PE) prices in 2HCY24 as demand for food and packaging improves.
“The group anticipates a strengthening of PE prices in the second half of 2024 (2HCY24), driven by an expected improvement in the general economy during that period.
“Additionally, a slight uptick in the food and packaging segment is foreseen. The oversupply situation is projected to ease somewhat as older, less efficient PE plants in China are retired.
“PetChem’s outlook suggests that PE prices for 2024 will range between USD1,000 to 1,100 per MT compared to USD1,012 per MT average in 2023,” it said.
In addition, the company also expected urea prices are to remain stable due to the expectation of stable feedstock costs, particularly natural gas, Kenanga said.
“China’s stringent urea export policy is projected to persist until mid-2024, and any potential relaxation of export restrictions could introduce additional supply to the market.
“India, being the largest demand driver for urea, plans to boost domestic production to reduce reliance on urea imports. The forecast for urea prices in 2024 is an average ranging between USD350 to 400 per MT. In 2023, urea prices averaged at USD350 per MT,” it said.
Meanwhile, the research house said methanol market outlook is anticipated to remain weak with additional capacity and sluggish demand in China.
“The group sees continued rise in methanol capacity in 2024, with significant contributions from Asia, the Middle East, and the United States.
“(Additionally), China’s decarbonization policy is anticipated to dampen the demand growth for methanol in 2024, leading to a redirection of capacities to Southeast Asia.
“PetChem expects (lower) average methanol prices, to hover around USD300 per MT in 2024, compared to the average of USD320 per MT in 2023,” it added.
Kenanga maintained its forecasts as the guidance of product prices is largely in line with its assumptions.
It kept its TP of RM6.74 pegged to unchanged 15x FY24F PER, in line with the valuations of Asian peers PTT Global Chemical PCL, LG Chem Ltd, Formosa Shyen Horng Metal Sdn Bhd and Lotte Chemical Titan Holding Berhad (LCTITAN).
“There is no adjustment to TP based on ESG given a 3-star rating as appraised by us,” it said.
The research house like PetChem due to signs of bottoming of polyolefin prices supported by crude prices, the gradual recovery at its specialty chemicals division, and its superior margins compared to its peers due to a favourable cost structure.
“However, the upside to its earnings and hence share price is capped by the limited upside of its product prices amidst a tepid global economic outlook.”
The risks to Kenanga’s call include worse-than-expected economic growth globally leading to weaker petrochemical prices, PIC costs
exceeding estimates due to operational issues, and worse-than-expected oversupply in specialty chemicals particularly in European
regions.
