Petrochemicals: Primary margins recede across the chain
Latest petrochemical margins update suggests weakness across the chain where weekly update indicates that the delta of PolyVinyl Chloride (PVC) has trimmed 1% WoW to USD445/ton.
PVC prices stood stable at the level of USD835/ton, unchanged for the week; whereas, ethylene prices rose by USD10/ton for the week to USD780/ton (+1% WoW).
Meanwhile, Purified Terephthalic Acid (PTA) - Paraxylene (PX) margin for the week came off by USD10/ton to USD111/ton (-8% WoW) due to lower PTA rates.
PTA prices were reported at USD620/ton, down 2% WoW, while PX rates were seen unchanged at USD765/ton.
Polyester Staple Fibre (PSF) margins contracted by3% WoW to USD357/ton largely owing to lower PSF prices despite weakness in feedstock rates. PSF prices were noted at USD1,078/ton, down 2% WoW while Mono-Ethylene Glycol (MEG) prices were seen at USD535/ton, down USD10/ton or 2% WoW while PTA declined by 2% WoW.
The above declining trend will have negative implications for local chemical players, that is, Lotte Chemical Pakistan Limited (LOTCHEM) and Engro Polymer and Chemicals Limited (EPCL). However, we wait for sustainability of the current trend to change our stance on the respective stocks.
Weekly petrochemical margin update suggests core delta of PolyVinyl Chloride (PVC) settled at USD415/ton lower by 1% WoW from USD418/ton. The dip in delta was a result of increase in ethylene rates.
In the past four weeks, ethylene rose by USD70/ton to settle at USD830/ton for the week. On the other hand, PVC prices remained unchanged at USD830/ton. To note, core delta came off by 12% from levels seen in Oct’19.
Paraxylene (PX) prices inched up during the week whereas Purified Terephthalic Acid (PTA) prices saw a drop of 1% WoW and stood at USD610/ton. Consequently, PTA margins came off by 8% WoW to settle at USD95/ton. The downward adjustment in PTA prices is attributable to muted buying interest. Similar levels of PTA margins were last seen in Oct’17.
Over the week, Polyester Staple Fibre (PSF) margins trimmed by 3% WoW to USD349/ton despite weak feedstock rates. Mono-Ethylene Glycol (MEG) prices were seen lower, dropping down to USD545/ton while PTA corrected by 1% WoW. PSF prices tapered by the end of the week to stand at USD1,065/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 with the stocks trading at a P/E of 7.6x and 5.3x, respectively.