Petronas Chemicals Says Oil Slump Won't Derail Spending Plan

  • Unit of Malaysia state oil company sees tougher 2016 on crude
  • Industry outlook clouded by volatile oil price, Chinese demand

Petronas Chemicals Bhd., a unit of Malaysia’s state energy company, will spend $4 billion over the next five years to mostly invest in a refinery and petrochemicals complex spearheaded by its parent in Johor state, bordering Singapore.

The company predicts a “tougher” 2016 because of a plunge in crude and an oversupply that’s pushed down product prices, Chief Executive Officer Sazali Hamzah said in an interview via e-mail. Petronas Chemicals typically benefits from higher oil which drives up petrochemical-product prices. The industry’s outlook this year is clouded by volatility in the oil market and slower Chinese demand, he said.

“Many companies will tend to back off from capital investments, stopping or shelving some of their projects,” Sazali said. “With our strong cash position, we have the advantage to fund our existing projects and growth projects as well.”

Petroliam Nasional Bhd., the parent company, is proceeding with the $27 billion integrated refinery and petrochemicals complex even as it defers some other projects. Petronas, as the company is known, plans to lower capital and operating expenditure by as much as 20 billion ringgit ($4.8 billion) in 2016. It joins global peers such as Royal Dutch Shell Plc in cutting spending as the industry contends with the worst crude downturn in a generation.

Shares of Petronas Chemicals rose 0.3 percent to 6.82 ringgit on Wednesday. They have risen 24 percent in the past year, compared with a 7.4 percent decline in the benchmark FTSE Bursa Malaysia KLCI Index.

Other key projects this year include joint investments with BASF SE to build a 2-Ethylhexanoic acid specialty chemical plant and a highly-reactive polyisobutene plant in eastern Pahang state, Sazali said. Capital expenditure last year was 3 billion ringgit, he said.

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