Bottom line hit by lower sales volume and higher unit production cost

By NG MIN SHEN / 

Lotte Chemical Titan Holding Bhd’s net profit for the third quarter ended Sept 30, 2017 (3Q17), plunged 33.9% to RM230.31 million from RM348.32 million a year ago, mainly attributed to lower sales volume and higher unit production cost.

The integrated petrochemical producer said in a filing to Bursa Malaysia yesterday that the unit production cost was higher due to statutory routine plant turnaround for its Cracker 1 Plant, as well as overall lower profit margin spread.

Revenue for the quarter under review grew slightly to RM2.02 billion from the RM2.01 billion registered a year earlier, primarily due to an increase in selling price.

The group said the overall market started off moderately in the 3Q17, after the Hari Raya festive season, with market demand rebounding in late July following China’s announcement to ban imports of plastic scrap by year-end.

“The capacities taken offline caused by Hurricane Harvey in the US had temporarily affected supply from the US, especially to Latin America, thus briefly lifting the market, while supply from other regions was reportedly diverted to Latin America to fill the void,” it said.

The group’s plant utilisation during the quarter was lower at an average of 77% versus 92% in the same quarter last year.

“This was mainly due to statutory routine turnaround (every five to six years) for the Cracker 1 Plant in Malaysia, and Indonesia’s polyethylene plant load was reduced during the period due to poor polyethylene economics as a result of tight ethylene supply and high cost,” it said.

It added that overall average production cost rose on higher feedstock cost.

For the nine months ended Sept 30, 2017, Lotte Chemical’s net profit was 33% lower at RM686.08 million compared to the RM1.02 billion recorded last year, while revenue slid 4.7% to RM5.71 billion versus RM5.99 billion previously.

The group expects demand for polyolefin products to be stable in the 4Q17, with the Latin American market continuing to search for supply outside of the US until the latter stabilises post-hurricane impact, while olefins and derivatives are expected to be slightly bearish as supply improved on the completion of the regional cracker plant’s planned turnaround.

“We expect our production output in the 4Q17 to be higher compared to the 3Q17 in view of no major planned plant shutdown and the expected commissioning of our new TE3 plant in the 4Q17,” it said.

The company’s polyethylene plant load in Indonesia will remain low until polyethylene economics return.

“Barring any unforeseen circumstances, we expect our performance for the financial year ending Dec 31, 2017, to be positive,” it said.