Petrochemical companies such as Petronas Chemicals Group Bhd (PetChem) used to be a gem among investors looking for dividend as well as growth play.

However, these companies are likely to be facing declining fortunes at least in the next two to three years.

As it is, the petrochemical sector appears to be in an L-shaped recovery.

With such heavy capacity addition coming onstream over the next few years, it is unlikely that the sector will revisit its average selling price (ASP) highs in 2021 and 2H22 anytime soon.

Analysts expect PetChem to post a year-on-year decline in profit for the financial year of 2025 (FY2025)

This is after incorporation of Pengerang Petrochemical Company Sdn Bhd’s (PPC) losses of more than RM700 million annually.

Investors have been dumping PetChem shares in the past year.

The counter was at a 52-week high of RM7.15 before plunging to a low of RM4.5 in November.

Of course, the other petrochemical player is also affected by the oversupply issue.

Lotte Chemical Titan Holdings Bhd is probably worse off than PetChem as the former has been loss-making for 10 consecutive quarters since the second quarter of 2022.

Analysts do not expect its polyethylene-naphtha spreads are not wide enough for the company to turn profitable.

The counter has fallen over 52% in the past one year.

It touched a 52-week high of RM1.39 in June before plunging to a low lf 56 sen in December 2024.

A glut in supply is expected to persist for ethylene (up to 2028) and polyethylene (up to 2027)

This glut may include high-density, low-density and liner low-density polyethylene.

However, the outlook for monoethylene glycol should look slightly better as demand growth is expected to exceed capacity additions in 2025, before a supply surplus in 2026.

Urea, meanwhile, is anticipated to stay flat up to 2026, with about two to three million metric tonnes of new capacity additions in the pipeline.

It is going to be tough for investors to touch such stocks but may be a good opportunity to leverage on the cheaper valuation of the company.