April 23, 2024 (MLN): Slower domestic sales, budgetary and macro economic headwinds had an adverse impact on the profitability of Engro Polymer and Chemicals Limited (PSX: EPCL) in the third quarter of FY24, the company’s analyst briefing presentation document noted.

To note, yesterday, the company reported an unconsolidated loss of Rs784.32 million [LPS: Rs1.08] in 1Q2024, compared to a profit of Rs1.19 billion [EPS: Rs1.31] in the same period last year (SPLY).

The company's revenue fell by 7.9% YoY to Rs16.56bn on the back of lower international PVC prices and slower domestic PVC market, partially offset by higher caustic domestic sales.

The global PVC market remained under pressure on account of oversupply, geopolitical turmoil and high volatility in international energy prices.

The prolonged winter season further dampened demand especially in mainland China, where construction activity remained lackluster and downstream demand remained weak during Lunar New Year holidays.

The company noted that export volumes from China remain above three-year average, with India being the major market for Chinese PVC.

During the quarter, logistics and raw material costs were two major factors impacting the market.

Meanwhile, ethylene prices were volatile due to instability in the global oil and gas prices along with supply tightness.

Bullish sentiment prevailed since mid-January with Ethylene prices rising from $875 / MT to $1,050 / MT in the quarter.

In Asia, spot supply from regional producers remained tight and deep-sea cargoes from the United States and the Middle East were limited given the ongoing logistical issues in the Panama Canal and the Red Sea.

Operating rates of steam crackers also remained low during the quarter.

Gas availability at competitive prices remains a key challenge for the company. Gas rates fluctuated throughout the quarter.

During the quarter, EPCL received gas at 40% RLNG nomination, EPCL said.

Captive gas prices increased to Rs2,750 / MMBtu whereas industrial gas rates slightly decreased from Rs2,200 to 2,150 / MMBtu in March 2024.

Business Updates – PVC

PVC domestic downstream demand remained subdued marred by political uncertainty, non-conducive business environment, high inflation, rising energy and fuel costs, and prolonged winter.

Construction activity remained slow with cement sales declining by 13% YoY.

Rising steel prices, coupled with high financing costs and availability of new housing inventory further dampened downstream demand.

Despite these headwinds, the company was able to support the market by ensuring product availability and implementing various incentives to boost market confidence.

Business Updates – Chlor Alkali

International caustic soda prices remained low in the first half of the quarter before seeing a surge in prices in February, on the back of limited supply as plants went offline due to Lunar New Year and firm freight rates.

The caustic soda export market remained quiet as traders followed the demand cycle after the holidays.

While the domestic textile sector has been struggling due to high energy prices and inflation, dampening local caustic demand in textile woven sector. Demand for caustic in export-oriented denim sector saw an increase in the latter half of the quarter.

As international prices declined, domestic margins turned more attractive.

Despite that, the company maintained presence in the export market to enable inflow of valuable FX into the country, it said.

Engro Polymer has maintained Supply to domestic Export Oriented Units at 78%.

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Posted on: 2024-04-23T13:30:02+05:00