PChem ... Sep11

There have been concerns that the natural gas shortages, which led Tenaga Nasional Bhd to a third-quarter FY11 loss of RM500mil in July 2011 could likewise significantly erode Petronas Chemicals' upcoming results.

The intensified gas supply reduction in second-quarter calendar year 2011 (largely stemmed from the continuing shutdown of Bekok C platform off Terengganu and maintenance activities at three major gas platforms.

The supply of natural gas from Petronas' fields to Petronas Gas fell by around 5% quarter-on-quarter in the second quarter but the current curtailment in gas involves only methane, which is essentially used for the generation of electricity and other industrial customers.

The methane gas supplied as feedstock for the production of methanol and fertilisers fell by up to 10% in the second quarter 2011, while the volume of methane used for fuel appeared to be unaffected. But supply of other gases such as ethane, butane and propane are mostly unchanged. All in, the reduction in methane feedstock could shave 10% off the the second-quarter output of Petronas Chemicals' fertilisers and methanol.

Sverage spot prices for polyethylene, polypropylene and xylene had risen by 8%-16% while methanol and granular urea had appreciated slightly more, by 9%-19% in the second quarter.

Hence, for Petronas Chemicals' second-quarter group earnings, the higher product selling prices to easily offset the 10% quarter-on-quarter reduction in fertiliser and methanol output, together with the one-month impact from the hike in natural gas and electricity costs.

Over the near to medium term, concern about the deteriorating global economic outlook which has dampened crude oil prices to US$95/barrel with a similar collateral impact to naphtha and petrochemical prices.