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Asia300

Petronas Chemicals flags uncertainty in pricing amid soft demand

KUALA LUMPUR (Nikkei Markets) - Petronas Chemicals Group, the petrochemical arm of Malaysia's national oil and gas firm Petroliam Nasional, or Petronas, cautioned that product prices will remain uncertain this year despite recent gains amid soft global demand.

Petrochemical prices in 2017 are expected to be volatile, Chairman Md Arif Mahmood told reporters after Petronas Chemicals' annual shareholders' meeting. Demand, meanwhile, is expected to stay moderate this year, Chief Executive Sazali Hamzah said at the same news conference.

"Asian petrochemical players continue to face pressure from the supply glut with additional capacity coming on stream" despite a slight recovery in product prices in the first quarter, Sazali said. "Crude oil have yet to settle at a comfortable level, leading to potentially higher uncertainty in petrochemical prices."

Petronas Chemicals plans to spend most of its 4 billion ringgit ($918.80 million) budget this year on growth-driving projects such as Integrated Aroma Ingredients Complex and the Highly-Reactive Polyisobutene plant. That allows the company to focus on production of specialty chemicals that typically command higher margins than basic chemicals.

Earlier this month, Petronas Chemicals has approved the final investment decision for a $442 million plant producing isononanol in the southern state of Johor. The margin on specialty chemicals is about double that of basic chemicals, Sazali said.

The company had previously estimated that capital spending may rise by up to 25% in the next two years to help raise annual production capacity of basic chemicals to 16 million tons by 2020 from 10.8 million tons a year currently.

This year, the utilization rate for its plants is expected to fall to between 80% and 90% compared to 96% last year mainly due to scheduled shutdowns, Sazali said.

Petronas Chemicals had earlier cautioned that the utilization rate at its plants could fall this year due to mandatory maintenance shutdowns. The so-called statutory turnaround activity typically involves shutting down some of its refineries' operations for maintenance or upgrades.

"If oil prices stay at $50 to $55 a barrel, the stability would support petrochemical prices with potential to rise higher than they were last year given oil averaged $43 a barrel last year," said AmInvestment Bank Analyst Alex Goh. "If crude oil prices come off, this outlook could change."

Oil prices have averaged about $54 a barrel so far this year. Brent, the global benchmark in crude oil prices, fell to $51.87 a barrel on Wednesday.

Net profit rose 5.4% in 2016 to 2.93 billion ringgit from 2.78 billion ringgit a year earlier, in-part boosted by stronger U.S. dollar. Revenue for the period climbed 2.4% to 13.86 billion ringgit from 13.54 billion ringgit in 2015.

Shares of Petronas Chemicals fell 1.9% to 7.40 ringgit on Wednesday while the benchmark FTSE Bursa Malaysia KLCI was up 0.2%.

--Jason Ng

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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