Lotte Chemical Titan Holding's Output Capacity Hike To Exceed Malaysian Domestic Demand

Lotte Chemical Titan Holding's output capacity hike to exceed Malaysian domestic demand

05-Aug-19

Lotte Chemical Titan Holding Bhd (LCT) delivered a core net profit of only RM44 mln in Q2-FY19 , not much better than Q1-FY19’s RM33 million, as per CGSCIMB Research.

For H1-FY19, LCT’s core net profit declined 83% year-on-year (y-o-y) to just RM77 mln, mainly as a result of decline in prices for products such as polyethylene (PE), polypropylene (PP), benzene, toluene and butadiene that arose from weak Chinese demand, and the diversion of US petrochemical exports to Southeast Asia in light of China’s imposition of 25% import tariffs on US petrochemical exports.The price declines were greater than the decline in the price of naphtha, LCT’s major feedstock, leading to a margin squeeze for all products. The margin squeeze was the smallest for PP, but was acute for PE, benzene and butadiene.
In addition, depreciation costs rose y-o-y due to the commissioning of the third PP plant in Pasir Gudang, Johor from Sept 1, 2018, while the effective tax rate rose as reinvestment allowances with respect to the plant were fully utilised in Q4-FY18. The y-o-y decline in profits came despite a higher plant utilisation rate of 89% in Q2-FY19 (versus 82% in Q2-FY18) and 87% in H1-FY19 (versus 82% for H1-FY18).

Petronas Chemicals Group Bhd (PetChem) is expected to start up its PE and PP plants by the Q4-2019. PetChem will commission its 900,000 tpa PP plant, which will add to LCT’s 640,000 tpa PP plant, upon which LCT will see its market share of PP production capacity in Malaysia decline from 100% (monopoly status) to 42%. LCT’s market share of PE production capacity in Malaysia will also decline from 50% currently (with PetChem taking the other 50%) to 30%, once PetChem commissions its 350,000 tpa linear low-density polyethylene plant and 400 tpa flexi-high density polyethylene plant at Pengerang, Johor. The inrease in production capacity is expected to be in excess of Malaysia’s domestic demand, triggering price competition between LCT and PetChem for domestic and export sales, particularly to regional markets like Indonesia, as per CGSCIMB Research.