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Lotte Chemical Titan expects outlook to improve on strong polymer product ASPs

Lotte Chemical Titan expects outlook to improve on strong polymer product ASPs

04 Mar 2021

KUALA LUMPUR (March 4): Lotte Chemical Titan Holding Bhd (LCT) sees a brighter outlook for the company, thanks to a continued uptrend in average selling prices (ASPs) of polymer products.

“What we are seeing now is a very healthy price trend for polymer products, and we expect the strong product ASP outlook to continue into the first half of 2021 (1H21),” said its president and chief executive officer (CEO) Park Hyun Chul in a filing with Bursa Malaysia.

The strong prices of polymers products are expected to either hold or increase, mainly buoyed by brightening economic recovery prospects with global vaccination roll-outs, complemented by a sudden polymer supply shortage in the Southeast Asian (SEA) region caused by ongoing shipping container issues which curtailed imported polymer supplies from other regions, he said.

“At the same time, the deep freeze storm in the US in February affected operations in the key production hub in Texas, which significantly reduced US supplies. [Texas] is one of the key petrochemical producers.

“In addition, the SEA region may also experience further supply disruption due to outages and expected plant turnarounds in Asia and key Middle East producers in 1H21,” he added.

Hence, the company expects an improved overall outlook for the petrochemical industry as its key polymer products have seen surging prices, with market polymer ASPs up to US$1,100 (RM4,461.60) per metric ton in the fourth quarter of 2020 (4Q20) and expected to rise above US$1,200 per metric ton in the first two months of 2021.

This came after polymer ASPs hit a trough in 2Q20 during the height of the global Covid-19 pandemic, when the market’s polymer ASPs fell to around US$800 per metric ton.

Park noted that two of the company’s key products, namely low-density polyethylene (LDPE) and polypropylene (PP), are currently fetching significantly higher ASPs of around US$1,550 per metric ton (as at end February 2021) — the highest since the industry experienced a downturn beginning 2018.

Meanwhile, on its feedstock cost which correlates with global Brent crude oil prices, Park noted that the company was seeing relatively stable naphtha prices as the uptrend in Brent prices had been capped to a certain degree, given the potential easing of supply curbs by OPEC+ amid a global recovery from the pandemic.

It is worth noting that LCT’s profitability relies on the polymer-naphtha spread trend as naphtha is its feedstock.

For the full-year outlook, Park said the company is cautiously optimistic as new additional global capacities may be expected in 2H21, which could push down polymer ASPs.

“Nevertheless, we are seeing renewed relevance and higher demand for usage of plastic materials given the importance of hygiene and clean food packaging, and higher demand for PPE (personal protective equipment) as well as e-commerce packaging during the pandemic period”, he added.

“Our company will continue to focus on operational and financial performance optimisation initiatives amid a highly volatile and challenging external environment. Notwithstanding the current headwinds, we will continue to be vigilant and explore value-accretive opportunities to further drive our growth. At the same time, we will remain steadfast to focus on our key growth strategies to achieve our vision of becoming a top-tier petrochemical company in Southeast Asia,” he concluded.

In another development, LCT declared a dividend of 3.27 sen per share for the financial year ended Dec 31, 2020 (FY20), which translated into a total dividend payment of about RM74.3 million or a 50% payout ratio for its profit after tax and minority interests (PATAMI) of RM148.6 million for FY20.

In addition, the company said it had implemented the dividend reinvestment scheme (DRS) for this final dividend to allow its shareholders an option to reinvest their dividend in new LCT shares.

It added that the company had also successfully completed a major statutory plant turnaround for its Malaysian complex in 1H20 during the pandemic lockdown period.

At press time today, LCT shares were traded unchanged at RM2.21, giving it a market capitalisation of RM5.08 billion, with 2.27 million shares changing hands so far.

Its share price has increased two times compared with its March low of 99 sen last year.

Source: The Edge Markets