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Energy

Malaysia's Petronas Chemicals pins hopes on Saudi Aramco JV

Petrochemical and refinery project in Johor expected to boost output and profits

The $16 billion Pengerang Integrated Complex joint venture between Malaysia's Petronas Chemicals Group and Saudi Aramco in the southern state of Johor. (Photo courtesy of Petronas Chemicals Group)

KUALA LUMPUR -- Malaysia's Petronas Chemicals Group is pinning its hopes on a long-awaited $16 billion Saudi-backed refinery and petrochemical project as it seeks to boost slumping profits while investigating possible new acquisitions, its top executive told Nikkei Asia.

The Pengerang Integrated Complex (PIC) joint venture in the southern state of Johor is a portion of the larger $27 billion Pengerang Integrated Petroleum Complex mooted in 2012. Saudi Aramco -- Saudi Arabia's national oil producer -- is to supply half of the crude feedstock for the refining portion and share half of the output.

The refinery has a capacity of 300,000 barrels of crude oil per day and will produce a range of petroleum products, including gasoline and diesel, that meet Euro 5 fuel emission specifications.

The project's opening has been delayed by what will be more than two years by fires as well as the coronavirus pandemic. It was initially slated to begin operating in the first quarter of 2019.

Sazali Hamzah, managing director and CEO at Petronas Chemicals -- the petrochemical arm of state-owned energy company Petroliam Nasional, or Petronas -- said in an interview that PIC will start operating in the second half of 2021 and likely begin boosting the company's output from next year.

"The project will be able to increase our production capacity by 13% to 14.5 million [metric] tons per annum, compared to 12.8 million tons currently," he said.

Sazali also said the project would contribute significantly to the company's earnings, though he added it is too early to estimate by how much.

"This year, we can rule out any contribution, but in the fourth quarter I would be able to tell our expectations for 2022 and beyond," he said.

Sazali Hamzah, managing director and CEO of Petronas Chemicals Group. (Photo courtesy of Petronas Chemicals Group)

Petronas Chemicals is one of the largest integrated chemical producers by capacity in Southeast Asia. Its products include olefins, polymers, fertilizers and methanol. Net profit last year slipped 42% to 1.63 billion ringgit ($395 million) from 2.81 billion ringgit in 2019, mainly due to weak crude prices and softer demand arising from the pandemic. Revenue for the 12-month period also dropped, falling 12% to 14.36 billion ringgit.

In August, it partnered with South Korea's LG Chem to build a nitrile butadiene latex manufacturing plant at the PIC to take advantage of the booming demand for nitrile gloves spawned by the coronavirus pandemic. The plant, with an annual capacity of 200,000 tons, is expected to be operational in 2023.

Petronas Chemicals, which acquired the world's largest independent silicone and lubricant oil additives producer, Da Vinci Group, for 760 million ringgit in May 2019, remains hungry for more global acquisitions, said Sazali, who is a chemical engineer by education and has led the company for seven years.

He said the purchase of Netherlands-based Da Vinci has benefited his company by allowing instant access to high-growth sectors such as personal care, construction and health care.

"Our appetite is very high. ... We are now evaluating a few prospective companies very carefully," he said, adding that it is the right time for acquisitions given lower valuations.

"Currently we are closely evaluating five companies," he said. Petronas Chemicals has looked into over 7,000 companies since 2019, he added.

Sazali said Petronas Chemicals, which currently has 11 production sites in Malaysia, the Netherlands, Canada, Singapore and Germany. expects to create value from prospective investments, rather than relying on current capacity alone.

With its comfortable margins for earnings before interest, taxes, depreciation and amortization, the group should stay within its core concerns of construction, paints and coatings, personal care, health care, food and nutraceuticals, oil and gas, electronics and automotive-related raw materials.

"These are the things that we look at because we believe it will bring us to be a sustainable business in the next 20 to 30 years," he said.

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