KUALA LUMPUR, July 20 — CGS-CIMB Securities has maintained its ‘reduce’ rating on Petronas Chemicals Group (PCG) shares with a lower target price (TP) of RM5.68 from current price of RM6.31.

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

It said that according to Consultancy Chemical Market Analytics (CMA), polymer/monoethylene glycol (MEG) prices may rise in the third quarter of 2023 (3Q 2023) forecast on restocking activity after second quarter FY2023’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 3Q 2023.

"Based on Bloomberg data, PE and PP prices, as well as MEG prices were at/below their late-2022 prices in mid-July 2023, with the short-lived 1Q 2023 price rally giving way to sequential falls in 2Q 2023 due to active destocking activity by manufacturers as a result of poor consumption end-demand globally.

"However, CMA believes that Chinese restocking demand may happen in 3Q 2023 in preparation for the year-end holiday shopping season,” it said.

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 believes that PCG has been selling polymers from Pengerang at below market prices in order to clear output during the ongoing commissioning phase.

"This could accentuate PCG’s commissioning losses in 2Q 2023 and 3Q 2023 in our view.

"Upside risks include consumer demand recovery in China and other developed markets,” it added. — Bernama