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Monday, 26 June 2017

Petronas Chemicals Intimate Lotte Chemical Titan not a big threat.

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Malaysia: Petronas Chemicals Group Bhd (PCG) is unfazed by the proposed listing of Lotte Group's Malaysian unit Lotte Chemical Titan Holding Bhd on the Main Market of Bursa Malaysia this year.

PCG managing director and CEO Datuk Sazali Hamzah said Lotte's market is mainly in Korea and any expansion that the group does is mainly through their Korean market.

"Definitely anybody that comes into the market will be a competitor for us but we feel there is still a lot of room to play and to compete with them as well. It is not really a big threat to us,” he told reporters at its AGM yesterday.

According to the draft prospectus submitted by Lotte Chemical Titan, it will use the proceeds raised from the initial public offering to partially finance the development of its integrated petrochemical facility in Banten Province, Indonesia and two other projects in Pasir Gudang, Johor.

"It is not direct competition because we believe most of the products they produce will be shipped to Korea. So we are directly competing in the Korean market but not in Southeast Asia, because in Southeast Asia we have a very strong, established position and our commission network is also quite huge. We believe that we will be able to sustain our market position,” said Sazali.

For the current financial year ending Dec 31, 2017 (FY17), PCG has allocated RM4 billion for capital expenditure (capex), similar to the amount spent last year. The bulk of the capex will be spent on the Pengerang Integrated Complex (PIC) in Johor.

The group will fund the capex with internally generated funds. As of Dec 31, 2016, its cash stood at RM7.4 billion.

Last week, PCG approved the final investment decision for a US$442 million (RM1.9 billion) isononanol (INA) plant located in PIC. Sazali said the investment will be spread over three years until 2019 and for FY17, it will only be spending 10% of the total amount.

He said INA, which is used for the production of plasticiser, has low toxicity, which is an advantage for PCG as some of its competitors’ products have been banned from some markets due to higher toxicity.

"We see that there is very high potential for this product in Southeast Asia as well as in Asia Pacific. The reason is related to the population growth in this region. This product is used for the manufacturing of toys, cables, automotive for example, car dashboard. This kind of demand we predict will continue to grow,” he added.

He said the route-to-market activities have already been done and it has met some of the potential clients. There have also been requests for the product to be further processed.

Sazali said the margin of specialty products, including INA, is normally twice the margins of basic chemicals. Upon completion, the INA project will be the largest in Southeast Asia and Asia Pacific with 250,000 metric tonnes per annum capacity.

"Our competitor is one plant in China, about 180,000 metric tonnes per annum and we believe that is not sufficient to support the demand of this region,” he said.

Commenting on petrochemical prices, chairman Md Arif Mahmood said the prices trend very closely to oil prices, especially for oleofins.

"If you look at the oil prices in the last couple of months, it hovers around US$50 to US$55 (per barrel) and it keeps on moving. That's the reason why we are saying the prices, because it tracks also the crude prices, it would be volatile … if you look at what it was in 2016, hopefully we'll have a slight improvement in 2017,” he said.

He said PCG will focus on ensuring reliability of operations and higher utilisation at its facilities to reduce unit cost and improve margins. It will also boost marketing efforts to remain competitive.

Overall, PCG aims to grow its capacity by 49% to 16.1 million tonnes per annum by 2020, from the 10.8 million tonnes per annum currently.

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