Engro Polymer (PSX: EPCL) saw a shifting trend in its fortunes in CY16, which is now continuing strong during this calendar year. The company released its 1HCY17 results yesterday posting a growth of 17 percent to its top line.

Cost of sales on the other hand grew only marginally in the first half of this year, which further contributed to the growth in profits (growing by 28 times in 1HCY17 compared to this period last year).

Ethylene is a key ingredient to polyethylene. After the OPEC supply cut deal, global ethylene prices rose, peaking in February of this year. Since then, they have followed a generally downward trend, except in July when the price of PVC increased along with the price of ethylene. The general decline in ethylene price limited the increase in cost of sales. Gross margins as a result phenomenally rose from 13 percent to 23 percent.

In the first half of 2017, PVC prices remained stable, increasing marginally from May to June. Lower ethylene prices and stable PVC prices increased the PVC-Ethylene spread in the second quarter of this year; hence Engro Polymer was able to post higher profits. In July 2017, PVC-Ethyl margins were at $425 per ton as compared to $246 of the corresponding month last year stated a report by Optimus foundation.

Engro Polymer is the sole manufacturer of PVC resin in Pakistan, under the brand name SABZ. In 2016, nearly 80 percent of PVC consumption of Pakistan was supplied by Engro Polymer, with the rest being supplied by imports.

PVC has higher consumption in developed economies. For example, in Pakistan the PVC per capital consumption is $1.03kg and in India it is 1.7kg, whereas in US it is 13.4kg and in Germany it is 16.4kg. This implies potential for domestic consumption especially with the launch of CPEC.

Going forward, as per a report by Optimus Foundation, PVC prices are likely to remain stable due to reductions in the supply of China’s carbide based PVC caused by higher feedstock prices and stricter local environmental policies.

EPCL expects the PVC demand to increase and hence is investing via plant de-bottlenecking to ensure continuous local supply to domestic market.

Copyright Business Recorder, 2017

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