Petronas Chemicals Group expects a stable to slightly weaker outlook for product prices due to a soft global economy, partially cushioned by supply constraints, according to reports by Kenanga Investment Bank (Kenanga). Despite the lack of catalysts in the downstream segment of the oil and gas industry, the company remains resilient with a maintained MARKET PERFORM rating.

Kenanga maintains a MARKET PERFORM call on Petronas Chemicals Group (PCHEM) with a target price of RM6.28, citing stable polyethylene prices and slightly weaker methanol and urea prices. The report highlighted that the downstream segment's outlook aligns with the bank's view that the industry lacks significant catalysts.

PCHEM indicated that low-density polyethylene (LDPE) prices are expected to remain firm due to high plant turnaround activities and limited new capacity in China, while high-density polyethylene (HDPE) prices may weaken due to new capacity in the ASEAN region and China. Methanol prices are forecasted to weaken in the second half of the fiscal year 2024 (2HFY24) due to new capacities in Southeast Asia and the US, despite support from low utilisation rates at coal-to-methanol plants in China.

Urea prices are anticipated to stay within historical ranges as China's export restrictions continue and demand from India remains low due to weather conditions. The expected addition of 1 million metric tonnes (mt) of urea production capacity in India will reduce the need for significant imports. Ammonia prices are expected to remain stable with tepid demand recovery and flat feedstock costs, particularly for natural gas.

Kenanga's forecast remains unchanged, maintaining a target price of RM6.28 based on a 15x FY24F Price per Earnings (PER), consistent with valuations of regional peers such as PTT Chem, LG Chem, Formosa, and LCTITAN (Not Rated). The bank's investment case for PCHEM is supported by the bottoming of polyolefin prices, potential recovery in the speciality chemicals division, and superior margins due to a favourable cost structure.

The lack of significant upside to product prices amidst a tepid global economic outlook, particularly in China, caps the potential for earnings and share price growth for PCHEM. Despite this, the company's strong fundamentals and strategic positioning provide a stable investment option within the oil and gas sector.