Key Highlights:
-
2
divisions: Oleofin & Derivaties (74% revenue) and Fertilisers &
Methanol (26% of revenue)
-
There are 2 types of feedstock 1) Ethane (Gas
base) & 2) Naphtha (oil base). PCHEM
uses only gas which cost much lower and less volatile. Past few years saw price
difference averaging USD600/tonne. With spread dropping to low of USD25 in 1H but
recovered to USD180-200/tonne.
-
Main
competitors for gas based are from the Middle East (ME) and Thai based PTT
Global Chemicals. While naphtha based is from Korea & Taiwan where
feedstock is highly correlated with Oil prices.
-
Petronas supplies gas at USD1.50-2.00/mmbtu
which is comparable to ME but lower than USA producers. Supply contract expires in 2016 & 2023
with negotiations starting in 2014.
-
Don’t see ME as a threat as transportation cost
is higher to ship to ASEAN region which requires ME to ship in larger
quantities while PCHEM could do Just In Time shipments.
-
Going forward expansion will mainly be in Naphtha based (RAPID - Johor) and
Fertilizer division (SAMUR - Sabah). Products expansions are done in JV with BASF.
- SAMUR cost RM1.5bn
completion in 2015.
- RAPID plant will be building
next to the refinery and will be PCHEM’s first venture into Naphtha based
products. Cost are more volatile but Naphtha base can produce more variation of
products. RAPID project will have 25plants which is much bigger than Kerteh
that has 6plants.
- Kuantan expansion of new
superabsorbent polymers plant (for diapers) and expansion of glacial acrylic
acid capacity.
-
Maintenance:
RM650mil spend on maintenance. With Kerteh plant due for major maintenance in
Oct 2013 for the oleofin division. Major maintenance involves shutting down of
plant for significant number of days for internal inspections. Fertiliser plant
was shut for 30-45days in 2Q for major maintenance. It needs to be done every
18months but could be extended up to 51months subject to certain conditions.
Plant has reached 51months. Utilisation
was 90% for 1Q2012.
-
Earnings:
1Q saw weaker margins for Oleofin division due to narrowing of feedstock
spread. But this was offset by stronger performance from Fertilisers
division. Margins for Oleofin has recovered
but Fertilisers division could see margin compression after China’s increase in
Urea export that has driven pricing from USD500 to USD410 with new supply now coming
from Kafkung,Qatar.
-
Conclusion:
Wont see major earning boost until completion of SAMUR and RAPID. Earning could
also be impacted by major maintenance and new competition for next 2 years.
Hold at best given its defensive nature of business.
