Lotte Chemical Pakistan : demands for PTA is ~780K tons/annum, while local production is 500K tons

The management of LOTCHEM held a corporate briefing session today to discuss the company’s performance post release of 9MCY21 results.

To recall, the company posted a profit after tax (PAT) of PKR 628mn (EPS: PKR 0.41), down by 34% YoY compared to PKR 951mn (EPS: PKR 0.63) during SPLY. On a QoQ basis also, earnings went down by 35%. This takes 9MCY21 earnings to PKR 3,230mn, (EPS: PKR 2.13) compared with earnings of PKR 867mn (EPS: PKR 0.57) during 9MCY20. The company also announced a cash dividend of PKR 1.5/share along with the result.

Key Takeaways

During 9MCY21, LOTCHEM production went up by 36% to 384K tons compared to 295K tons during same period last year. The rise in production was due to COVID-19 last year and currently the plant is running at its full capacity.

Prices of Acetic Acid has gone up to USD 1,000/ton, which have dented on the margins of the company. The management disclosed that, Acetic Acid is 4% of total raw material cost and they are importing it from Malaysia and Korea.

Rise in other expanse is driven by higher WPPF and WWF expenses.

Rise is finance cost is due to exchange loss of PKR 518mn during 3QCY21.

The management disclosed that the current local demand of PTA is ~780K tons/annum, while local production is 500K tons and rest is being imported to meet the demand.

The management also disclosed that, the all the feasibilities regarding future expansion have been done. The company is waiting for downstream industry expansions. The minimum size for new expansion is 850K tons (CAPEX: USD 450mn) which is higher than local demand. As per management, the exports of PTA are not feasible from Pakistan due to higher cost compared with the region.

As per the management, below 5% import protection the new expansion of PTA is not feasible.

On Gas prices hike, the company believe that the price hike will not be applicable for textile industry. LOTCHEM also come under zero-rated regime and same treatment will be done with company as with textile industry.

In case of any gas shortage during winter, the company has backup connection with KEL.

Currently 5% import duty is applicable on PTA imports and there is no import duty on imports and Paraxylene and Acetic Acid.

Courtesy – AHL Research

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