KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB Research) has maintained a bearish outlook for Lotte Chemical Titan Holding Bhd (LCT) this year, due to a slowdown in the petrochemical sector.
The research house said weak demand resulting from a slowdown in the economy and higher interest rates impacting consumer spending are contributing factors to the slowdown.
It also said the reopening of China has sparked speculative buying in polymers, leading to a temporary rebound in polymer prices in first quarter (Q1) 2023, this upswing however was short-lived.
"The lackluster demand globally has caused polymer prices to resume their downward trajectory. Going forward, we expect polymer prices to stay under pressure due to the combination of additional supply and tepid demand," it said in a note.
On the cost front, HLIB Research said although naphtha prices have also corrected alongside oil prices, the decline in polymer prices has outpaced that of naphtha.
The bank said this situation is primarily driven by the OPEC+ supply cut, which has supported oil prices and consequently influenced naphtha prices.
"As a result, a significant decline in product spreads has occurred, dampening Lotte Chemical's earnings potential. Given that this challenging dynamic shows no signs of improvement, we believe Lotte Chemical's earnings outlook remains subdued and uncertain," it said.
In anticipation of a challenging operating environment and weak upcoming Q3 FY23 results, HLIB Research said the current technical rebound would present an opportunity to trim exposure.