Petrochemicals: Core delta depict decline for the week
- Primary margins for the petrochemical chain corrected in the outgoing week as feedstock rates continued to climb. Ethylene saw the largest leap during the week up by 6% WoW.
- PVC prices were lower by 1% WoW to stand at USD830/ton for the week compared to USD835/ton previously. Whereas, ethylene prices leapt higher for the week to USD825/ton, a rise of USD45/ton or 6% WoW. The run up has been reported due to uptick in buying and limited availability of ethylene in the region.
- As a result, core delta of PolyVinyl Chloride (PVC) came off by 6% WoW to USD418/ton.
- Purified Terephthalic Acid (PTA) - Paraxylene (PX) margin for the week declined by 7% WoW to USD103/ton, its lowest level since Nov’17. Uptick in PX rates by 1% WoW to USD770/ton while lower rates of PTA for the week noted at USD615/ton led to the weakness of margins.
- Polyester Staple Fibre (PSF) margins inched up 1% WoW to USD359/ton mainly driven by lower PTA rates. Mono-Ethylene Glycol (MEG) prices were seen rebounding to USD550/ton, a rise of USD15/ton or 3% WoW while PTA declined by 1% WoW. On the other hand PSF remained flattish to stand at USD1,081/ton.
- We remain cognizant of the negative implications of the declining margin trend for the chemical players, Engro Polymer and Chemicals Pakistan Ltd (EPCL) and Lotte Chemical Pakistan Ltd (LOTCHEM). However, we wait for sustainability of the current trend to change our stance on the respective stocks. We rate EPCL and LOTCHEM as Buy that are trading at a P/E of 7.6x and 5.6x, respectively.
Engro Polymer & Chemicals Limited is a chlor vinyl chemical company. The principal activity of the Company is to produce and market chlor-vinyl products, which include poly vinyl chloride (PVC), vinyl chloride monomer (VCM), caustic soda, hydrochloric acid and sodium hypochlorite. The Company operates through three segments: poly vinyl chloride (PVC) and allied chemicals, caustic soda and allied chemicals, and power supplies. The poly vinyl chloride (PVC) and allied chemicals segment manufactures and sells PVC and allied chemicals to various industrial customers, including pipe manufacturers, shoe and packaging industry. The caustic soda and allied chemicals segment manufactures and sells caustic soda and allied chemicals to textile and soap industry. The power supplies segment supplies surplus power generated from its power plants to Engro Fertilizers Limited. The Company manufactures and markets over four grades of PVC under the brand name SABZ.
Lotte Chemical Pakistan Limited (LCPL) is a Pakistan-based manufacturer and supplier of Purified Terephthalic Acid (PTA). The Company has the capacity to produce approximately 500,000 tons of PTA per year through its plant located at Port Qasim, Karachi. It operates in the manufacture and sale of chemicals segment. The Company is a supplier for the domestic polyester and polyethylene terephthalate (PET) industries. For producing PTA, it imports its feedstock (Paraxylene) from suppliers based in Asia and Middle-East region. PTA is the primary raw material for producing polyester fiber, polyester filament yarn, polyester film and PET.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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