As per a PSX notice, Engro Polymer & Chemicals Limited (EPCL) has entered into an interim agreement with Sui Southern Gas Company Limited (SSGC) for the supply of gas till 28th Feb’23. The price will be charged to EPCL at the rate on industrial/commercial pricing as notified by the Oil and Gas Regulatory Authority (OGRA).
Currently, EPCL is being charged PKR 1,087/mmbtu while the current (Nov’22) rate of RLNG notified by OGRA is USD 14.81/mmbu (PKR 3,318/mmbtu).
However, to manage the expected gas shortage in the winter season, the company has already planned an annual turnaround during Dec’22 for 30 days. Normally, the company holds one month’s inventory (15-20K tons).
On the basis of the aforementioned development, we have calculated the potential financial impact on EPCL. As per our calculations, the company will have to increase PVC prices by USD 285/ton to fully pas on the impact of higher gas prices.
However, due to lower international PVC prices, we assume EPCL will only pass on half of the impact of higher gas prices, translating to a negative earnings impact of PKR 0.91/share (assuming 40,000 tons of PVC production during the RLNG pricing period). Albeit, if the company absorbs the full impact of higher gas prices, the profitability will decline by PKR 1.82/share.
Courtesy – AHL Research