Petrochemicals: Movement in feedstock rates shuffles margins
Primary margins for the petrochemical chain were noted on a downward trajectory (barring PSF) compared to the previous week. Latest quotes reveal core delta of PolyVinyl Chloride (PVC) has settled 5% WoW lower to USD455/ton.
Ethylene prices reportedly climbed during the week to USD830/ton, up 4% WoW, amid constrained product availability and uplift in buying. PVC prices were noted at USD870/ton, down 1% WoW.
The development remains neutral for Engro Polymer and Chemicals Pakistan Ltd (EPCL). The QTD margins have averaged at USD481/ton, up 13% QoQ, and current margins remain above the long term average delta.
Purified Terephthalic Acid (PTA) - Paraxylene (PX) margin for the week trimmed 8% WoW to USD143/ton despite uptick in PTA rates by 1% WoW to USD665/ton. PX prices rose USD25/ton to settle at USD785/ton, up 3% WoW.
With margins retracing from their YTD highs, we see current margins to be a neutral development as they continue to trade over and above our base case margins of USD140/ton and long term average of USD115/ton.
Polyester Staple Fibre (PSF) margins shored up 13% WoW to USD325/ton. Higher feedstock rates were recorded for the week with Mono-Ethylene Glycol (MEG) prices were seen rebounding to USD615/ton, a rise of USD50/ton or 9% WoW while PTA rose 1% WoW. However, favourable uptick in PSF prices during the week to USD1,112/ton, or 6% WoW, helped drive the margins.
We reiterate our buy rating on EPCL and LOTCHEM trading at a forward P/E of 6.3x and 5.4x, respectively.
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