Petronas Chemicals needs more time for Samur project

KUCHING: Petronas Chemicals Group Bhd (Petronas Chemicals) expects the Sabah Ammonia Urea (Samur) to achieve plant utilisation of 50 to 70 per cent in FY16 following full start-up in the second half of 2016 (2H16).

Typically, for new plants, management expects operations to ramp up gradually before achieving full utilisation after a year or so.

Therefore, for FY16, if urea prices sustain at current levels, management expects a ‘tight range’ to achieve cash cost breakeven.

Nevertheless, following full ramp-up, management expects cash profits to be robust if Samur achieves 90 per cent utilisation for a full year, observed TA Securities Holdings Bhd (TA Research).

To recap, Samur is Petronas Chememicals’s new US$1.5 billion fertiliser plant located at Sipitang, Sabah.

This plant is capable of producing 1.2 million tonnes per annum of granulated urea and 740,000 tpa of liquid ammonia. “We believe 90 per cent PU is highly plausible, given that SAMUR’s capacity offtake is largely locked-in,” it said in a report yesterday.

“Approximately 70 per cent of output is contracted to customers via term contracts ranging between one to three years.

“For such contracts, we understand that prices are typically fixed at inception throughout the tenure of the contract. Therefore, this partially assuages our concerns of tepid demand, although we believe a rebound in average selling prices (ASPs) is unlikely to happen in the near term.”

According to ICIS, the oversupply of urea is set to continue into 2016 as more nitrogen capacity is due to start up. While demand for urea is expected to continue growing, TA Research said the growth would not be able to offset the oversupply. Therefore, ICIS expects to see lower average prices in 2016.

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