KUALA LUMPUR (April 8): PETRONAS Chemicals Group Bhd (KL:PCHEM) saw its shares tumble to a two-week low on Wednesday, reversing course after more than doubling in recent weeks.

Investors unwound recent trades following a two-week ceasefire agreement between the US and Iran, sending the stock to an intraday low of RM4.69, down 20% or RM1.19. The stock later pared its losses to close 29 sen or 4.93% lower at RM5.59. The sharp drop led to a suspension of short-selling in the stock for the rest of the day. Short-selling in the stock will resume on Thursday.

The stock had more than doubled in less than a month, fuelled by expectations of higher petrochemical prices due to supply disruptions from the Middle East conflict. However, the truce quickly reversed those gains on hopes that the current oil shortage would ease, likely leading to a normalisation of petrochemical prices.

The temporary ceasefire, which is expected to halt the American-Israeli military campaign in exchange for Tehran reopening the Strait of Hormuz, sent crude oil plunging to its steepest decline in nearly six years — with Brent crude dropping 15% to US$94 (RM378.77) per barrel.

Despite the sharp decline in share price, analysts kept their calls on PetChem unchanged.

MBSB Research, for one, kept its outlook, which it recently upgraded from 'neutral' to 'buy' with a revised target price of RM6.60 from its previous target price of RM3.01, implying an upside of 8.7%.

“It is very much dependent on the conflict, as we have factored in a valuation premium due to the Middle East situation.”

“We can’t predict what will happen over the next two weeks. I think there could be potential revisions to our valuation. But for now we are maintaining our 'buy' call with a target price of RM6.60”, MBSB tells The Edge.

Meanwhile, another analyst believes the ceasefire may have calmed oil prices, but the damage to supply infrastructure tells a different story.

"I think the attacks on refineries and petrochemical facilities in the Middle East are extensive, so the petrochemical markets could remain tight for a few months."

In an April 1 note, MBSB highlighted that fertiliser prices, particularly urea, have risen in tandem with seasonal demand during the spring planting season across major agricultural economies such as the US, Europe, and China.

“The immediate impact of these developments was evident in fertiliser markets, where urea prices recorded a sharp increase of approximately 12.78% within a single day, rising from US$665 to US$750 per tonne. While for the month of March, it managed to appreciate by +28.9% mtd [month-to-date]”, it said in the note.

Over the same period, methanol prices have also strengthened, rising about 4.5% in a single day and nearly 30% month-to-date in March. 

This is tightening the conditions across downstream chemical markets as feedstock constraints begin to filter through the value chain.

PetChem’s long-term gas supply arrangements with its parent, Petroliam Nasional Bhd (PETRONAS), also provide it with a structural cost advantage, allowing it to secure feedstock at comparatively lower and more stable prices, MBSB noted.