This article first appeared in The Edge Financial Daily on November 1, 2018

KUALA LUMPUR: Lotte Chemical Titan Holding Bhd’s net profit dipped 6% to RM216.89 million in its third quarter ended Sept 30, 2018 (3QFY18), from RM230.31 million a year ago — despite a higher revenue — mainly because the group faced margin squeeze arising from significant increase in feedstock price.

Revenue grew 20% to RM2.42 billion from RM2.02 billion, contributed by higher sales volume of both its olefins and derivatives, as well as polyolefin products, driven by production improvements and higher average product selling prices.

Notwithstanding the slightly weaker 3QFY18 earnings, the group’s net profit for the cumulative nine-month period (9MFY18) grew to RM776.11 million, 13% more from RM686.08 million a year ago, as revenue expanded 21% to RM6.91 billion from RM5.71 billion on higher sales volume.

Average plant utilisation rate improved from 69% in 9MFY17 to 84% in 9MFY18, due to improved plant reliability and no routine turnaround, Lotte Chemical Titan’s quarterly results filing yesterday showed.

“The plants were operating at a sufficient level to maintain profit maximisation, taking into consideration the need for plant general maintenance,” Lotte Chemical Titan said.

The group said its operation results for FY18 are expected to be primarily influenced by the demand and supply balance of petrochemical products in the market, its ability to maximise production outputs and operational efficiency, and feedstock prices, which correlate with crude oil prices.

“Historically, polyolefin prices will move in tandem with feedstock prices on a lagging basis, provided demand and supply for polyolefins are balanced,” the group said.

At this juncture, the group expects market sentiment to remain cautious with the unresolved US and China trade war, as well as the uncertainty in crude oil prices.

“Oil price is expected to increase with the Iran sanctions and strong gasoline demand. However, the escalation of the trade war between the US and China will weaken the global demand, and consequently dampen the growth in oil price. This uncertainty will result in the volatile fluctuation of crude oil and naphtha prices,” the filing added.

Lotte Chemical Titan’s share price was trading six sen or 1.43% higher at RM4.27 at 4.14pm yesterday, giving the group a market capitalisation of RM9.57 billion. In the past 12 months, the stock has retreated about 16%.