KARACHI: Pakistani petrochemical manufacturers are facing shrinking profit margins as Middle East conflict-driven disruptions push up the cost of raw materials faster than they can raise prices for finished products, according to a research note published Friday by JS Global Capital Limited.
The brokerage said continuing turmoil in the Middle East has disrupted global chemical markets, affecting energy supplies, trade flows, logistics and demand. A full normalization of petrochemical trade and supply chains is likely to take several months and depends on how the conflict is resolved, the report said.
Naphtha, a key refining intermediate that feeds into petrochemical production, has been a major driver of the cost pressure. Prices for the feedstock climbed 25% in July from the prior month and 38% from a year earlier, as crude oil market disruptions pushed up input costs, according to the report.
PVC margins under pressure
Margins on polyvinyl chloride, or PVC, remained weak, staying below $300 a ton as of July 30. The squeeze was driven largely by an 11% monthly jump in ethylene prices, to roughly $925 a ton, while PVC prices themselves stayed largely flat. That left the PVC-ethylene spread down 2% week over week, at $297 a ton, well below the level needed for a meaningful recovery in profitability, the report said.
JS Global said soft PVC demand, elevated inventories and cautious buying are limiting producers’ ability to pass higher feedstock costs on to customers, even as geopolitical tensions are expected to keep raw material costs elevated. The brokerage described the trend as negative for Engro Polymer & Chemicals Limited (EPCL).
PTA-PX spread narrows
Margins between purified terephthalic acid, or PTA, and its feedstock paraxylene, or PX, also narrowed, falling about 6% week over week. The decline was driven by a sharper rise in PX prices, which climbed to roughly $1,140 a ton in July, compared with a slower increase in PTA prices, to around $860 a ton. The PTA-PX spread stood at $102 a ton as of July 30, down from $108 a week earlier.
JS Global said the trend is negative for Lotte Chemicals Pakistan (LOTCHEM).
PSF margins hit multi-month low
Margins for polyester staple fiber, or PSF, fared worse, retreating to $118 a ton, their lowest level since April 22, after rebounding to about $264 a ton in recent months. The 18% weekly decline was driven by feedstock costs rising faster than PSF prices, which held steady. PTA prices rose 12% month over month and MEG (monoethylene glycol) prices climbed 21% over the same period, while PSF prices were unchanged.
JS Global said the trend is negative for Lucky Core Industries (LCI), noting that elevated raw material costs are likely to keep the company’s PSF segment profitability subdued.
Sector outlook
JS Global said the broader decline in petrochemical margins is negative for the sector as a whole, singling out EPCL, LOTCHEM and LCI as most exposed to the pressure. The report was authored by JS Global analyst Syed Danyal Hussain.
The findings come as Pakistan’s benchmark KSE100 index closed down 495 points, or roughly 0.28%, at 175,547.98 on July 30, according to the report.
