Ancom expects demand recovery in 2H20

Despite a possible slowdown in the economy in terms of improvement in weather and the clearance of 2019’s high inventories

by SHAZNI ONG/ pic by MUHD AMIN NAHARUL

ANCOM Bhd expects its business prospects to improve in the second half of the calendar year on better demand and lower inventory levels for agrochemicals despite the ongoing concern over the coronavirus outbreak which has yet to impact its business activities so far.

“The market is still absorbing the high stock levels (inventories) from last year and from the economic slowdown in terms of product movement which we expect to continue in the first half of the year (1H20).

“We foresee a recovery in the 2H20, despite a possible slowdown in the economy, in terms of improvement in weather and the clearance of 2019’s high inventories,” Ancom group CEO Lee Cheun Wei (picture) told reporters after a media briefing in Kuala Lumpur yesterday.

The diversified group is involved in various business divisions, namely agricultural and industrial chemicals, polymers, oil and gas, logistics, information technology and media.

Ancom’s wholly owned unit, Ancom Crop Care Sdn Bhd (ACC) is the pioneer manufacturer of weed control active ingredients for crops such as sugarcane, cotton and palm oil with products ranging from herbicide, insecticides, fungicides and timber preservatives.

Lee added that while the coronavirus has not impacted ACC’s agrochemicals business, he noted the supply-side risks could affect it if the outbreak persists beyond the April-May period.

The risks include lockdown of the cities affected in China, the extension of holidays, refrain from cross-border logistics and labour shortage, which could eventually disrupt the whole supply chain.

“ACC purchases 60% or about RM100 million worth of raw materials from China. We are not saying there is an immediate impact on us, as we usually stock up before Chinese New Year in anticipation of the slow month due to festive celebrations,” he said.

On the market-side, Lee said its Diuron and Monex products have seen more enquiries as buyers divert to producers outside China to source for their stocks.

Currently, ACC stands to benefit from the current annual quantities of Diuron (2,500 metric tonnes) and Monex (1.5 million litres) it produces which translates to 60% of its operating capacity and Lee does not rule out the possibility to increase that to 80%.

ACC is Ancom’s most profitable business unit, with Malaysia as ACC’s highest revenue contributor, accounting for 34% of revenue, while Brazil is its largest foreign contributor at 13%, followed by Australia at 8% as of financial years 2018/2019.

ACC distributes its products to over 40 countries, including the US, Mexico, Jamaica, Honduras, Cuba, South Africa, Nigeria and Japan, as well as to selective Asean countries through its global distribution networks, handling more than 3,500 twenty-foot equivalent unit containers annually.

Its new market additions are France, India, Central Asia and Kenya.

ACC is also looking to grow its product portfolio with new product solutions.

ACC is in the pipeline to introduce at least two new active ingredients and plans an additional three to four within the next two years, Lee said.

ACC also stands to benefit from the international customers wanting to diversify their source for active ingredients away from China to reduce dependency on a single market in the future.

Nylex (M) Bhd, an Ancom unit which manufactures polymer, phosphoric acid and ethanol and distributes methanol, has also seen a rise in inquiries following the shutdown of plants in China due to the coronavirus outbreak.

Nylex manufacturing business has seen an increase in orders and pricing power, Lee said.

In terms of Nylex’s methanol distribution, the price of methanol may be under pressure as there is a growing potential of an excess of the product in the market as China, which is a net importer of the methanol, has lower demand due to the country’s plants not operating at full capacity at present.

Ancom’s shares closed 3.79% or 2.5 sen higher at 68 sen yesterday, valuing the company at RM164.98 million.