Challenging Environment for Petronas Chemicals
Petronas Chemicals Group Bhd (PetChem) is expected to continue operating under significant market pressure, as detailed in a recent analysis by Hong Leong Investment Bank Bhd (HLIB). The company is navigating a persistent oversupply environment, which is directly contributing to muted downstream demand and, in turn, is pushing down key product prices such as ethylene. This challenging landscape also extends to PetChem’s specialty chemicals segment, which is being weighed down by a combination of weak demand from the residential construction sector, rising operational costs, and the same pervasive issue of oversupply. The report paints a picture of a company facing strong headwinds on multiple fronts, with external market dynamics largely dictating its performance and profitability in the near term. These factors create a complex scenario for the company’s financial outlook, which is now being reflected in analyst forecasts.
Operational and Financial Performance Scrutinized
The financial pressure on PetChem is further highlighted by the performance of its Pengerang Petrochemicals Company Sdn Bhd (PPC), a key operational asset. The PPC plant began a creditor reliability test on June 26, and is currently running at a utilization rate of 80 to 90 percent. While there was a marginal improvement in its quarterly losses before interest, taxes, depreciation, and amortization, which narrowed slightly from RM140 million to RM135 million in the second quarter of 2025, the overall financial health of the unit remains a concern. The analysis notes that if market conditions do not improve, ongoing impairment testing could lead to further asset write-downs. Such write-downs would be a direct result of lower projected cash flows and a diminished recoverable value for the asset, underscoring the serious financial risks posed by the current market downturn.
Significant Downgrades and a Pessimistic Outlook
As a direct consequence of these persistent market challenges, Hong Leong Investment Bank has drastically revised its financial forecasts for PetChem. The firm has slashed its profit projections for the financial years 2025, 2026, and 2027 by a considerable 43 percent, 27 percent, and 20 percent, respectively. This adjustment is based on HLIB’s expectation of lower plant utilization and reduced sales volumes within the olefins and derivatives segment. The investment bank anticipates this segment will continue to be loss-making for the foreseeable future, citing subdued product prices due to regional oversupply, weak downstream demand, and continued margin compression resulting from unfavorable paraxylene–naphtha spreads. Reflecting this pessimistic outlook, HLIB has maintained a “Sell” rating on the company and has lowered its target price to RM2.18, a significant reduction from its previous target of RM2.50.
