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.
