Petrochemicals: Tumbling feedstock rates improve margins
The latest week saw petrochemical margins surge as feedstock rates tumbled in the South Asian region. Latest quotes indicate that the delta of PolyVinyl Chloride (PVC) increased 5% WoW to USD520/ton.
During the week, PVC prices rose 1% WoW to reside at USD870/ton after depicting stability for the past eight weeks. Ethylene prices continued to drift lower for the third consecutive week as demand remained weak. Ethylene stood at USD700/ton for the week, down 4% WoW. The latest data on margin remains a positive development for Engro Polymer and Chemicals Ltd (EPCL).
On the other hand, Purified Terephthalic Acid (PTA) prices were notably under pressure during the week correcting by USD30/ton, or 5% WoW, to settle at USD545/ton. Paraxylene (PX) rates came off by USD60/ton during the week residing at USD675/ton, the lowest levels in the past eight years.
Resultantly, Purified Terephthalic Acid (PTA) - Paraxylene (PX) margin indicated the level of USD96/ton, up by 11% WoW.
PTA-PX margin has hovered at the same levels for the past few weeks lower than long term average of USD115/ton. The current trajectory remains negative for Lotte Chemical Pakistan Ltd (LOTCHEM).
Polyester Staple Fibre (PSF) margins stood increased by 4% WoW to USD379/ton amid lower feedstock rates. PSF prices came off by 2% WoW to stand at a level of USD1,029/ton. Mono-Ethylene Glycol (MEG) prices were noted at USD515/ton, down USD20/ton or 4% WoW while PTA rates were noted lower by 5% WoW.
We have a Neutral stance on EPCL and LOTCHEM currently trading at a P/E of 7.5x and 5.0x, 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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