INSIGHT: Malaysia petrochemical output, trade stay tepid; recovery momentum slows

SINGAPORE (ICIS)–Malaysia’s petrochemical production and trades have remained largely lacklustre despite easing of pandemic-related restrictions as downstream production is still constrained by manpower shortage due to surging infections and slow vaccine rollout.

Some plants continue to run at just above half their capacity amid heightened concerns over the highly-transmissible Delta variant of the novel coronavirus spreading in the country.

Returning to full production will depend on how fast Malaysia’s working population will get fully vaccinated.

Malaysia posted a record high daily increase in COVID-19 cases on 26 August at 24,599, bringing the country’s total of confirmed cases to 1.64m, with 15,211 deaths, according to its health ministry.

Based on latest official data, 43.2% of Malaysia’s total population have completed two-dose COVID-19 vaccination, according to state news agency Bernama.

Non-essential activities in the manufacturing, construction, mining and quarrying sectors as of this week were allowed to operate at full capacity provided that 80% to 100% of workers are fully vaccinated, based on the government’s guidelines.

The southeast Asian country has been on a nationwide lockdown for nearly three months from 1 June,.

Twelve categories under manufacturing – including the oil and gas industry – are categorised as essential, and thus were allowed to operate during  lockdown at 60% of capacity, but some are running their plants at lower rates.

MARKET ACTIVITY SUBDUED
In the polyethylene and downstream plastic products industries, little has changed in terms of supply-demand fundamentals.

Demand remained slow with some factories still unable to increase operating rates either due to the lack of fully vaccinated workers or due to the slow demand for finished products.

“The situation is the same, nothing has changed yet,” said one market source.

“Workers at our factory have only had their first dose. Now they need to wait a few more weeks.”

Many said they were still operating at around 50-60% with no major ramp-up in production rates expected in the near-term.

Some were also wary of making any major changes to their current operating environment, cautious of a possible change in rules as a new prime minister just took over the government reins.

“Nobody knows what is next in this country,” said another market source.

Newly appointed Prime Minister Ismail Sabri Yaakob is expected to announce members of his cabinet later on Friday.

Sabri, who was the deputy PM, was appointed as successor four days after Muhyiddin Yassin resigned from the post on 16 August, ending less than 18 months of rule, the shortest stint for a Malaysian PM.

Synthetic rubber users in Malaysia, primarily the tyre makers, are still awaiting the go-ahead to resume, and their factories remain shut, a SBR/PBR trader said.

In the titanium dioxide (TiO2) market, downstream operation rate is fluid as everything will depend on how many workers have received their two vaccination shots against COVID-19.

For polystyrene (PS), buyers are maintaining a wait-and-see attitude on the market as prices of feedstock styrene monomer (SM) are falling.

In the oleochemicals space, no immediate changes in market conditions are observed. The market stayed quiet in the week.

“We still can’t get our empty bags and drums on time. Even though [restrictions have] eased, it will take time for these factories to clear the backlogs,” a market player said.

A major detergents manufacturer has been running its plant at 60% of capacity since end-May due to manpower shortages. This is keeping demand for feedstock light grade soda ash low.

For PE pipe grade, existing stocks in the domestic market continued to change hands at $360/tonne DEL (delivered), equivalent to around $330/tonne CFR SE (southeast) Asia, sidelining a China-origin cargo offered at $360/tonne CFR SE Asia.

Local converters continued to run their plants at reduced rate of 50% or lower, below the limits set by the government, also on account of weak downstream demand.

Suppliers of PE pipe grade resins have been allocating reduced quantity for the southeast Asian markets, including Malaysia, in view of poor demand amid the region’s raging battle against COVID-19.

In the methyl tertiary butyl ether (MTBE) and xylene markets, a slight pick-up in activities ensued.

Malaysian refiner Hengyuan Refining Co issued a tender to buy a Q4 MTBE cargo to cover a small requirement, which was not covered during the annual term contract due to coronavirus considerations.

Gasoline and blend stock demand should improve in Malaysia moving forward.

A local xylene end-user, meanwhile, started in the week to increase lifting volumes from distributors.

Distributors still have sufficient stocks to last in their inventory through September due to pre-fixed shipment from a regional producer, while some have started looking for October-arrival imports.

ECONOMIC RECOVERY SLOWS
Malaysia has had to temper its expectations of a strong rebound this year from a pandemic-driven slump in 2020, as a direct result of months-long lockdown following the strong resurgence of COVID-19 infections, with added uncertainty on the political front.

Bank Negara Malaysia, the country’s central bank, has lowered its GDP growth projection to between 3.0-4.0% for 2021, from its previous forecast of a 6.0-7.5% expansion.

The growth trajectory critically hinges on the country’s ability to contain surging infections and the speed of vaccine rollouts.

While still an improvement from the 5.6% GDP contraction in 2020, the revised growth forecast reflected a slowing recovery momentum with most of the third quarter spent in lockdown.

Based on projections from 34 economists, average GDP growth for Malaysia this year would be 4.3%, down from their August forecast of 4.8%, Spain-based research firm FocusEconomics said in its September ASEAN Consensus Forecast report.

Fitch Solutions has the most dismal outlook on the Malaysian economy, projecting a zero growth for the full year.

Former PM Muhyiddin stepped down on 16 August after months of political turmoil amid growing outcry over mismanagement of the COVID-19 pandemic in the country.

“Sabri’s appointment [as new PM]—endorsed by Muhyiddin— suggests policy continuity ahead. However, his thin parliamentary majority—114 out of 222 MPs [members of parliament]—poses risks to the country’s political stability,” FocusEconomics said in the report.

The Malaysian ringgit (M$) had weakened against the US dollar over the past month, “weighed on by political uncertainty following the prime minister’s resignation in mid-August”, but should strengthen later in the year “on a sustained current account surplus and better growth prospects”, it said.

On the political front, “the next hurdle will be the tabling of a motion of confidence in the new PM when parliament reconvenes on 6 Sept,” Singapore-based UOB Global Economics and Market Research said in a note on 23 August.

“Fresh elections are ruled out for now due to the pandemic situation. The next
general election is not due until May 2023,” it said.

Market focus will be on the selection of deputy PM and key positions in the new cabinet to take charge of finance, trade and investments, health, and domestic affairs, it stated.

“We do not expect the political changes to derail current economic policies, recovery plans, and vaccination progress,” according to UOB, which maintained its 2021 GDP growth forecast for Malaysia at 4.0%, the high end of the government’s revised target.

Bank Negara Malaysia expects a gradual recovery in the fourth quarter as the economy re-opens, aided by higher global growth and sustained policy support,

The growth momentum should gather pace into next year, partly on improvement in external demand, it added.

“The economy is expected to bounce back this year in line with gradually firming domestic activity, while recovering foreign demand, particularly for electrical and electronic products, should bolster the external sector,” FocusEconomics said.

“That said, surging new infections at home, which could lead to tighter Covid-19 restrictions, and lingering political uncertainty cloud the outlook,” it said.

Insight article by Pearl Bantillo

With contributions from Matthew Chong, Hazel Goh, Helen Lee, Helen Yan, Izham Ahmad, Keven Zhang, Jonathan Chou, Damini Dabholkar, Joson Ng and Ai Teng Lim

($1 = M$4.19)

Image: A deserted street in downtown Kuala Lumpur, Malaysia – 27 June 2021. (By Wong Fok Loy/SOPA Images/Shutterstock)