COMPANIES involved in chemicals are starting 2022 on a strong note as demand from end-use industries pick up with the reopening of economies.
Transparency Market Research in a mid-January report, estimates that the Malaysian chemical and petrochemical market will expand at a compound annual growth rate of 4.2% for the 2021 to 2025 period.
“Chemicals are used across various sectors from pharmaceuticals, automotive, packaging to agriculture. A pick-up indicates that economies are rebounding from the Covid-19 led downturn,’ says a dealer.Additionally, companies in the sector are also expected to get an uplift from higher product prices following the Russian-Ukraine conflict, although prices are expected to stabilise over a period of time. Russia is a major exporter of chemicals such as potash, ammonia, urea and other soil nutrients and the conflict has disrupted shipments of those key inputs around the world.
Petronas Chemicals Group Bhd (PetChem), according to Maybank investment Bank (Maybank IB), had profited from this “arbitrage trade as large Middle East producers diverted South-East Asia shipments to premium paying euro customers”.
The research firm posits a repeat scenario to play out in the second quarter of 2022 (2Q22). It pointed out that the supply-side disruptions in the global fertiliser market have driven ammonia and urea average selling prices (ASPs) to record highs in March.
“The ASPs for urea and ammonia in 1Q22 had averaged US$842 (RM3,625.65) and US$960 (RM4,133.76) respectively. Year-on-year, both commodities are up a staggering 78% and 75% respectively in the first three months of the year,” says Maybank IB. The fertiliser market turmoil is a boon to the bottom line of the group, which manufactures, markets, and sells petrochemicals. “Among stocks in the pool, PetChem has been attracting interest as it is seen as one of the proxies for the high oil prices. First quarter of 2022 is expected to come in strong, continuing from the fourth quarter of 2021,’ says the dealer.In in 4Q21, PetChem recorded its highest-ever quarterly profit of RM2.1bil, bringing financial year 2021 (FY21) profit to RMRM7.3bil.
The group saw a surge in profits at both the – olefins and derivatives as well as the fertiliser and methanol divisions.Another company that is riding the momentum is Ancom Nylex Bhd.
Earlier this week, the company, which is engaged in the manufacture, trade, and sale of agricultural and industrial chemical products reported a two-fold rise in net profit to RM15.14mil for the third quarter ended Feb 28, 2022.
This brought profits for the nine-month period to RM36.3mil – a 122% increase year-on-year. The growth was supported by its agrichem division, which saw an increase in orders from the export markets and Malaysia. It remains upbeat on its agrichem business prospects and anticipates demand from Thailand, Brazil, and Malaysia to increase. Meanwhile, Hextar Global Bhd, another agrochemical company, is also expected to see robust earnings growth following a series of acquisitions it made recently.
The company had ended financial year 2021 on a strong note with a 4Q21 net profit of RM14.3mil following contributions from its newly-acquired specialty chemicals segment, as well as improved contributions from its agriculture segment.
However, the full year net profit of RM39.6mil came in about 11% lower year-on-year due to expenses incurred for its various corporate exercises, in addition to cost pressures from supply chain-related disruptions.