Poor Q4 results expected; no reprieve for Asian petchems

16 January 2009 05:34  [Source: ICIS news]

By Pearl Bantillo and Bohan Loh

SINGAPORE (ICIS news)--Asian petrochemical companies are bracing themselves for dismal fourth quarter financial results primarily due to the plunge in manufacturing demand for raw materials, analysts said on Friday.

Values for petrochemical building blocks such as light olefins, polymers and aromatics fell sharply across the board, some losing over 50% of their value between September and December, prompting a sharp devaluation of stock on hand.

Thai energy major PTT which produces a broad range of petrochemicals from polymers, olefins to phenol, may be in the red in the past quarter because of a huge inventory write downs as a result of this.

“PTT should be recording a deep net loss for the quarter,” said Sutthichai Kumworachai, an analyst with Bangkok-based brokerage firm KGI Securities citing that the company’s one-off inventory losses could be as high as Baht (Bt)12bn (approximately $344m) for the period.

Fitch Ratings had previously also warned of impending massive inventory write-offs that could possibly breach the company’s debenture covenants late in 2008.

In China, polyvinyl chloride (PVC) producer Xinjiang Tianye Corp had warned that its 2008 earnings would be down by more than 50% from the previous due to the fall in PVC resin prices.

State-linked polymers and monoethylene glycol (MEG) maker Shanghai Petrochemicals, meanwhile, had indicated in the third quarter of 2008 that bigger losses are on the cards in the three months to December partially due to uncertainty about financial subsidies for its oil refining operations.  

Asian petrochemical companies may have to endure more pain in the months ahead as market conditions may not improve soon, analysts added.

“Chemical prices have slowed down the speed of their decline. However, demand is still not recovering,” said Wang Xixin, a petrochemical analyst Guolian Securities.

“The rest of the year would remain very difficult for producers (olefins and aromatics) as margins will be extremely thin,” said Kumworachai. Term contracts for 2009 for most petrochemical products swung in favour of buyers as they cut volumes in anticipation of the fall in consumer demand for goods.

Consumer goods demand shrunk as key markets - US and Europe - reeled under the weight of their own financial and economic stresses.

Apart from sliding external demand, Japanese petrochemical companies had to contend with the appreciating yen, which was hurting their dollar-denominated export earnings.

Export-oriented Asian economies are struggling to make up for the shortfall in global demand for consumer goods, and have announced numerous fiscal stimulus packages on the domestic front to stave of a deep recession.

“Recovery is the big unknown right now. We hope the stimulus measures that have been announced around the world (would work) and hope recovery (will happen) in the second half but there is no guarantee (to that),” said David Cohen, chief economist at consultancy firm Action Economics.

Judith Wang contributed to this story

($1 = Bt 34.96)

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