Thai polypropylene maker HMC Polymers Company may defer investment due to high input costs

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HMC Polymers Company Ltd, Thailand’s third-largest polypropylene (PP) manufacturer headquartered in Bangkok, may postpone its planned capital expenditure (capex) due to skyrocketing input costs amid fears of squeezed profit margins.

Currently, the company is setting up a fourth PP production line with a capacity of 250,000 tons per year (TPA) in its existing unit at an investment of 10 billion Thai Baht (THB) (296.28 million USD). US). The majority of the overall investment has already been spent, leaving only THB 1.5 billion (~US$45,000) unspent. The company previously planned to spend this amount also in the first half of the current calendar year, which could be postponed to the second half. HMC has already obtained THB 10 billion, equivalent to the total capital expenditure of this plant, as a bank loan to finance the proposed investment.

A study published Tuesday by Fitch Ratings, said: “HMC plans to postpone the fourth production line of PP to the second half of 2022 from the first half due to pandemic-related disruptions and high input costs. Project costs will be reduced by around 14%, from a previous target of around 10 billion baht ($296.28 million), due to lower contingent liabilities and a higher baht than its budget .

After the successful completion of this fourth PP production line, HMC’s capacity will increase to approximately 1.1 million tons per year by the end of 2022, making it the largest PP producer in South Asia. -East. Currently, HMC is the largest PP producer in Thailand, with a market share of around one-third. The company’s market position is also strengthened by its focus on differentiated and specialized products, and partial upstream integration into a propane dehydrogenation plant.

“We expect HMC’s EBITDA to fall to approximately 3.2 billion baht ($94.79 million) in 2022 as we expect its revenue spreads to narrow due to new industry capacity. Rising raw material costs, driven by rising oil prices, are also expected to put pressure on its product spreads. We expect HMC’s EBITDA to improve to 4-4.5 billion baht per year in 2023-2024, supported by new capacity in addition to a general improvement in demand. This will help HMC deleverage further in 2023-24,” the Fitch study said.

HMC focuses on differentiated and specialized products, which have lower competition and higher margins. The proportion of sales of these products increased to around 55% in 2021 from around 35% in 2015, although this is expected to decline as the PP 4 line ramps up. The company aims to increase the contribution to around 70% sales by 2030. These products offer a premium of around 5% over the price of its base PP product, which supports its higher profitability than its competitors.

HMC uses state-of-the-art PP technology from LyondellBasell, a key shareholder, in its production. It will use the latest technology for its PP 4 line – one of only two plants in the world that can use C6 monomer to improve the properties of PP – and expand its product portfolio for new applications. The company is the leader in pipe and medical grade PP in Thailand and is the world’s largest producer of PP for dielectric film using modern technology. All of HMC’s products use LyondellBasell’s global brands.

“HMC’s credit profile is tempered by its limited product diversification and the inherent cyclicality of the industry. The Company’s earnings and cash flow are significantly affected by volatility in petrochemical prices and margins and by supply and demand dynamics. The company also only produces PP products, making it less diverse than its domestic chemical counterparts,” the study further states.

HMC has a smaller scale of operation as well as less backward integration and product diversification than IRPC Public Company Limited. However, HMC is more advanced in terms of products and technology and generates higher margins than IRPC, even excluding the refining business, as HMC focuses on differentiated and specialized products. This, combined with stronger credit metrics, makes HMC’s SCP a notch higher than IRPC’s.

The company’s business profile is slightly stronger than that of other companies in the polymers and plastic products sector, including Polyplex (Thailand) Public Company Limited and Eastern Polymer Group Public Company Limited (EPG).

DILIP KUMAR JAI
Editor
[email protected]

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