Petronas-BASF joint venture positive to partnership

KUCHING: Petronas Chemicals Group Bhd’s ( Petronas Chemicals) joint venture (JV) with BASF Nederland BV ( BASF) has approved the RM1.5 billion Final Investment Decision (FID), leading analysts to believe this is positive to the partnership between the two companies.

According to analyst Teh Kian Yeong from the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), this is positive to the partnership as even though BASF had pulled out of the Refinery and Petrochemicals Integrated Development ( Rapid) project in January 2013, their JV partnership in the Gebeng facilities remains unchanged and it has continued to work on new projects.

“To Petronas Chemicals, this venture is expected to open up a new business market for the gas- based petrochemical company into the f lavours, fragrance and pharmaceuticals markets.

“Project financing wise, Petronas Chemicals should have no problem as its balance sheet is in a strong net cash position of RM10.16 billion as at December 2013,” Teh explained.

Although financial year 2014 (FY14) remain challenging due to heavy maintenance activities, the analyst opined that it will be less heavy than FY13.

The research arm noted that contrary to FY13, the maintenance schedule is heavier on fertilisers and mehanol (F& M) segment compared to the oil and gas (O& G) segment.

“Nonetheless, we expect overall plant utilisation to improve slightly to 78.4 per cent in FY14 from 77.9 per cent in FY13,” the analyst projected.

On the other hand, Kenanga Research noted that the F& M’s methanol facilities faced gas supply constraint in the first quarter of 2014 (1Q14) as a result of extended upstream facilities shutdown to conduct offshore technical works.

With new FY14 assumptions of plant utilisation of 78.4 per cent from 85 per cent, US dollar to ringgit of 3.25 from 2.83 and oil price of US$ 102 per barrel ( bbl) from US$ 109 per bbl, the research arm thus trimmed its FY14 estimates by 6.7 per cent.

“We also extended our estimates horizon to FY16 with earnings growing by five per cent in FY15 on higher utilisation and strong average selling price (ASP), but FY16 earnings is set to decline four per cent on weaker US$ and ASP,” Teh added.