Revival of the chemical sector

Though trade deficit has climbed 29 percent in 5MFY19 year-on-year numbers with imports nearly five times the increase in exports (Read BR Research’s “Imports continue to bite,” published December 26, 2017), there does seem to be a smidgeon of improvement on the export side of chemicals. Chemicals and plastics exports grew by $79 million on a year-on-year basis, a 32 percent increase.

Chemical sector’s main products, according to Zubair Tufail the chairman of All Pakistan Chemical Manufacturers Association are PTA, PVC resin, and caustic soda. PET exports comprise a big chunk of Pakistan’s plastics exports with the United States as Pakistan’s biggest consumer. However, recent events may lead to a decline in PET exports this fiscal year (Read BR Research’s “End of PET exports?” published December 21, 2017).

The recent SBP report highlighted the decline in the chemical sector by 2.3 percent in FY17, after growing at a rate of 10 percent per annum in FY16. However, the latest export figures seem to indicate a revival to its former fortunes. Since textile is one of the main consumers of the chemical industry, increase in value-added textiles (Read BR Research’s “Textile exports: value addition leads growth” published December 26, 2017) helps boosts the chemical sector in turn.

While a naphtha cracker would be the biggest boon to Pakistan’s chemical industry (Read BR Research’s “Importance of a naphtha cracker” published 27 December, 2017) in the long run, the new auto manufacturers setting up shops in Pakistan in the short run would help increase the chemical sector’s production since many car parts are made of polymers.

As yet, most of the companies involved in manufacturing in this sector practice import substitution with few low value chemicals being exported. However, the devaluation of the currency should not only boost chemical exports but also that of the textile sector, thereby benefiting the chemical industry indirectly. With the textile and auto sector driving increase in production, the future prospects of the chemical sector to negate the continuation of the decline seen in the last fiscal year.