Return of Lotte Chemical Titan widely welcomed
KUCHING: Analysts welcomed news of Lotte Chemical Titan Holding Bhd ( Lotte Chemical) making a comeback after being privatised by its parent Lotte Chemical Corp ( LCC) of Korea six years ago.
Established back in 1991, Lotte Chemical was Malaysia’s first standalone producer of polyolefins. Today, the group remains the largest integrated producer of olefins and polyolefins in the country.
As an integrated petrochemical producer, the group stands to gain from polyolefins’ use in producing a variety of consumer and industrial products, while olefins are used as primary feedstock for the production of polyolefin products.
Currently, 80 per cent of the group’s revenue is generated from polyolefin products. In fact, it is the largest polyolefin producer in Malaysia and Indonesia, and the fourth largest in Southeast Asia.
From its prospectus launch on June 16, Lotte Chemical expects to raise RM5.92 billion from this
We laud its decision to expand further in Indonesia given the huge demand growth potential there.
initial public offering ( IPO) exercise, the biggest in recent years, with the issue of 740.5 ,illion new shares at an indicative retail price of RM8 share.
The proceeds from this IPO will be utilised to fund its two projects in Malaysia, namely TE3 and PP3, and the ambitious US$ 3.5 billion Integrated Petrochemical Facility in Indonesia.
“We laud its decision to expand further in Indonesia given the huge demand growth potential there,” said analysts with Kenanga Investment Bank Bhd ( Kenanga Research) yesterday.
“In addition, Lotte Chemical also has a 40 per cent equity stake with investment of US$ 511 million in US Shale Gas project with LCC.
“These four projects, with total budgeted capex of RM15.77 billion, will bring up its capacity by 73 per cent to 5,208KTA by end-2022 from 3,014KTA currently.
Post 2017, Hong Leong Investment Bank Bhd ( HLIB Research) said global polyolefin’s capacity surplus over demand is expected to widen further due to US shalebased capacity expansion and methanol- based China capacity additions.
“According to statistics, global polyolefin capacity surplus over consumption is expected to widen post 2017 due to capacity expansion in the US and China,” it said in a separate report.
“As a result, global operating rate of chemical production facility is expected to remain flattish in 2017-2018 before tapering off in 2019.
“The product spread would be out under pressure as capacity surplus over consumption in the global market is expected to increase significantly over the period of 2016-2019, being driven by China capacity expansion.”
HLIB Research said Lotte Chemical would be partially sheltered from this global overcapacity thanks to the Asean Free Trade agreement which would reduce incentives for additional supply from countries outside the region to penetrate into Asean.
“In line with the expected operating rate of worldwide chemical production facilities, integrated cash margin ( product spread) for the industry is expected to start trend down from 2018 onwards before recovering in 2021,” it addedd. “This is in tandem with the expected shift in demand- supply gap.
“In the Asean region, long-term capacity expansion is expected to be driven by major projects by several major downstream players. SCG ( Vietnam) plans to add 1.4 million metric tonnes ( MT) of polyolefin post 2020.
“Back in Malaysia, Petronas Chemicals Bhd plans to add circa 1.4 million MT of polyolefin capacity, transforming Malaysia from a net importer of polyolefin to a net exporter by 2019.
“PetroVietnam’s Nghi Son refinery would add around 0.4 million MT of polypropylene in 2018. Therefore, we believe this would put downward pressure on petrochemical product spreads due to oversupply of products and therefore bringing down overall petrochemical industry margins.”
Kenanga Research analysts