Lotte Chemical Titan sees demand growth offsetting oversupply pressure

THE share prices of Lotte Chemical Titan Holdings Bhd (LCT) and its peer Petronas Chemicals Group Bhd (PetChem) have risen 40.6% and 24.5% respectively since their lows in August, thanks to better product prices over the past few months.

This is because the petrochemical industry has been experiencing supply disruptions from the US as a result of Hurricane Laura, as well as strong demand for polyethylene and polypropylene, which are used in the manufacturing of a host of things, including face masks, personal protective equipment and packaging materials.

Still, analysts have cautioned that incoming supply may outweigh demand.

LCT is Malaysia’s largest integrated producer of olefins and polyolefins, consisting of polypropylene and polyethylene products. Its products are sold to plastic fabricators and trading houses locally and around the world.

In an email interview with The Edge, LCT president and CEO Dr Lee Dong Woo concedes that industry oversupply will persist in the short to medium term, resulting in some pressure on average selling prices (ASPs). Over the longer term, the overcapacity concern could be offset by overall demand growth, supported by a growing population and economic expansion.

He sees continued improvement in the business outlook in 4Q2020, after the reopening of regional economies, especially with the strong recovery in China.

“Our business is closely tied to regional and domestic economic growth, as it is essential to the key manufacturing sector,” says Lee.

He adds that the petrochemical sector’s outlook is also dependent on how US president-elect Joe Biden’s administration manages its relationship with China, after the industry was hit by trade disputes between the two superpowers.