PETALING JAYA: CGS-CIMB Research has maintained its “reduce” rating on Petronas Chemicals Group Bhd (PetChem) shares with a lower target price of RM5.68 from the current price of RM6.31.

       In a research note yesterday, CGS-CIMB Research said the derating catalysts include weaker average selling prices, heavier Pengerang commissioning costs and future operational losses from Pengerang.

       It said according to Consultancy Chemical Market Analytics (CMA), polymer/monoethylene glycol (MEG) prices may rise in the third quarter of 2023 (3Q23) forecast on restocking activity after 2Q23’s destocking, but ample supply could limit recovery.

       CMA said that polyolefins, made up of polyethylene (PE) and polypropylene (PP), prices may have already touched their lows, with a possible price recovery in 3Q23.

       Unfortunately, CMA is not optimistic that PE and PP prices will benefit much due to the excess global production capacity and the overall weak demand situation.

       “In other words, this could be an L-shaped outlook, in our view, unless producers cut back their plant utilisation more aggressively or demand picks up convincingly,” it added.

       Separately, CGS-CIMB Research believes that PetChem has been selling polymers from Pengerang at below market prices in order to clear output during the ongoing commissioning phase.

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       “This could accentuate PetChem’s commissioning losses in 2Q23 and 3Q23 in our view. Upside risks include consumer demand recovery in China and other developed markets,” it added. — Bernama