KUALA LUMPUR (Dec 26): Petronas Chemicals Group Bhd (KL:PCHEM) could be close to its turning point, and investors should take position in its stock ahead of a rebound in the industry, said Kenanga Investment Bank.

Prices of its major products polyolefins in 2025 would be in their third year of a three- to four-year cycle, suggesting a potential uptrend, the research house flagged in a note. The sector is highly sensitive to macroeconomic trends and supply-demand dynamics, it noted.

"We hold a slightly more bullish outlook” on its olefin and derivatives division, Kenanga said and upgraded its rating on Petronas Chemicals to a contrarian 'outperform' from 'market perform' with a higher target price of RM5.47.

Shares of Petronas Chemicals have declined some 32% this year, at a time when the petrochemical industry grapples with thinning refining margins. The ringgit, meanwhile, appreciated sharply against the US dollar before easing in early October, resulting in massive foreign exchange losses.

‘Sell’ calls for Petronas Chemicals still outnumber ‘buy’ recommendations following Kenanga’s upgrade. The consensus 12-month target price is now RM4.98, according to Bloomberg.

History has shown recurring patterns of booms and busts in the industry, with prices per tonne bottoming around US$700 (RM3,130) during the Covid-19 recession in 2019-2020 before peaking at US$1,380 in 2021, Kenanga highlighted. The 2016-2017 downturn was also followed by a price spike in 2018.

For 2025, Kenanga is assuming prices to average a “conservative” US$1,150 per tonne.

Further, the US ISM purchasing managers index (PMI) has been in a downtrend since 2022, consistently staying below the 50-point mark in 2023 and 2024, indicating prolonged contraction in industrial activity, the research house noted.

The positive PMI trend has been moving along with the year-on-year improvement in polyolefin prices, and “we believe investors should look out for a potential inflection point in 2025”, Kenanga flagged.

Petronas Chemicals is also set to undergo a major plant turnaround at one of its crackers, in line with rising global trend driven by deferred maintenance and ageing infrastructure that could crimp supply of polyolefins, Kenanga said.

The so-called turnaround activity in the oil and gas industry typically involves shutting down some refineries' operations for maintenance or upgrades. Turnarounds are typically planned extensively, due to the cost involved and potential revenue loss.

Many plants commissioned during the 2018-2022 capacity expansion wave in China and the Middle East are approaching their first or second major maintenance cycles. Concurrently, ageing facilities in the US and Europe require more frequent overhauls, further elevating global maintenance levels.

"While heavy plant turnarounds may impact production volumes, the higher average selling prices of petrochemical products often offset this impact,” the research house added.