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Chemical Company of Malaysia Bhd (CCM, 2879) expects rising demand for other chemical products to cushin caustic soda margin squeeze

CCM group managing director Nik Fazila Nik Mohamed Shihabuddin (pix) said some 40% of the group's business involves caustic soda — a highly versatile substance used in a variety of manufacturing processes — which prices have been impacted by the global economic slowdown. (Photo by: Mohd Suhaimi Mohamed Yusof/theedgemarkets)

KUALA LUMPUR (June 15): Chemical Company of Malaysia Bhd (CCM) sees rising demand for some chemical products amid the Covid-19 pandemic but the group cautions that it continues to face margin compression as prices of its core contributor, caustic soda, remain weak.

CCM group managing director Nik Fazila Nik Mohamed Shihabuddin (pix) said, some 40% of the group's business involves caustic soda — a highly versatile substance used in a variety of manufacturing processes — which prices have been impacted by the global economic slowdown.

"Definitely the lower prices will squeeze our margin further. Caustic soda is correlated to commodity prices. Any slowdown in the economy, which correlates to caustic soda prices, will dampen our earnings. But that is solely on the pricing side," she said in a virtual media briefing.

"However, we are expanding our capacity for caustic soda production to cater to the high demand in the country. In Malaysia, the demand for caustic soda products is more than existing supply. In essence, the demand outstrips supply. Our capacity expansion will help offset the margin compression to some extent," she explained.

In November last year, CCM announced that it had awarded Sime Darby Bhd a RM27.9 million contract to construct a co-generation plant to power the former's Pasir Gudang Works 1 (PGW1) in Pasir Gudang, Johor.

This will help expand the group's chlor-alkali production capacity by 50%.

It was reported that CCM will resume supply of caustic soda to Petroliam Nasional Bhd (Petronas) when the latter resumes operations towards the end of 2020, following a disruption due to a fire at Petronas' Refinery and Petrochemical Integrated Development (Rapid) site in April 2019.

"Even with the expanded capacity at our PGW1 plant, it will not be enough to cater for Petronas' Rapid. That's how big the demand for the product is in Malaysia," said Nik Fazila.

For the full financial year ended Dec 31, 2019, CCM said the average selling prices of its products compressed up to 28% compared with the corresponding period in 2018, negating the impact of higher sales volume for the year.

CCM's net profit declined by 65% to RM2.18 million for the first quarter ended March 31, 2020 (1QFY20) from RM6.25 million a year earlier. Quarterly revenue dropped slightly to RM96.6 million from RM96.9 million. The decline, however, was cushioned by a 14.9% increase in revenue by the polymer division.

Nik Fazila said CCM's polymer division has benefitted from the Covid-19 pandemic driven by the rising demand for personal protective equipment including gloves. This, she said, is expected to last beyond the easing of restrictions in Malaysia and globally.

In 1QFY20, CCM's polymer division saw an increase of 15% in revenue to RM27.4 million from RM23.8 million compared with the similar period in 2019 due to a surge in demand from the glove industry amidst heightened hygiene concerns over the outbreak of the Covid-19 pandemic.

"For polymers, we supply locally and regionally. Malaysia supplies about 70% of rubber gloves globally, so basically our business also has the same ratio. About 60-odd per cent of our supply goes to Malaysian glove makers and the remainder to other glove-making countries such as Indonesia, Thailand and China," she said.

Earlier, CCM said it was expanding the capacity for Kleeners — a cleaning solution for ceramic formers supplied to glove manufacturers. The group expects its facility in Bangi, Selangor to double output from 9,000 to 18,000 tonnes per annum when it is fully commissioned in 1QFY21.

https://www.theedgemarkets.com
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