Methanol Plant Closure Spells Challenges for PetChem

The unexpected one-month shutdown of a methanol plant is expected to have a potentially adverse impact on the financial performance of PETRONAS Chemical Group Bhd (PetChem) for the third quarter of its current fiscal year, 3Q23.

PetChem's PC Methanol (Plant 2) located in Labuan underwent an unplanned shutdown during the third quarter of 2023 due to mechanical failure. The shutdown may have consequences on PetChem's financials for the quarter in question.

The plant utilization rate in the fertiliser and methanol (F&M) segment for 3Q23 will mirror the rates observed in previous quarters, which were at 97.2% in 1Q23 and 73% in 2Q23. It is further anticipated that the overall full-year utilization rate could fall below 90%, primarily due to a decrease in the utilization rate within the F&M segment. This decline in utilization is attributed to the extended shutdown of the methanol plant.

Additionally, the subdued pricing of chemicals in the same quarter adds to the challenges faced by the company. Specifically, the average selling prices (ASP) of ethylene and monoethylene glycol experienced a 5.2% and 3.3% decrease, respectively, quarter-on-quarter (q-o-q) due to sluggish demand. Similarly, methanol's ASP was 5.3% lower in the quarter, largely due to higher inventories.

On the bright side, urea prices experienced a notable 15.9% increase q-o-q. This surge in pricing is attributed to export restrictions in China. However, it's important to note that the performance of specialty chemicals remained mixed, with certain segments, such as automotive chemicals, displaying robust momentum.

The closure of the methanol plant has led to a revision of PetChem's utilization rate assumption for the F&M segment for the fiscal year 2023. The utilization rate has been adjusted down from 90% to 85%. Additionally, there have been reductions in the assumptions for average selling prices (ASP) for the fiscal years spanning 2023 to 2025. These adjustments have, in turn, resulted in a decrease in earnings forecasts for the fiscal years 2023, 2024, and 2025, with reductions of 11%, 8.1%, and 0.6%, respectively.

Furthermore, the commissioning of PetChem's facilities in Pengerang continues to incur losses. However, it expects these losses to narrow in the coming quarters as production ramps up. The report anticipates that PetChem's Pengerang plants will become commercially operational only next year. The commissioning process in Pengerang remains in the red, with a loss before interest, tax, depreciation, and amortization of RM70 million in 2Q23, compared to a RM100 million loss in 1Q23. These losses are attributed to the start-up phase of the facilities, and the research house suggests that they are likely to decrease as production reaches its full capacity in the near future.