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Petrochemicals are the key building blocks for the manufacture of a wide variety of goods, from clothes to construction, from household appliances to food and beverage packaging. The range of application of petrochemicals is the reason why globally it is the biggest category among chemicals. Similarly, as per the data provided by Pakistan Chemical Manufacturers Association (PCMA), petrochemical is the largest sector of the chemical industry with a turnover of nearly Rs100 billion.

The price and margins of petrochemicals in Pakistan are largely influenced by international events. For example, the price of crude oil influences the price of petrochemicals which in turn influences the downstream products such as PVC and PTA. In the last calendar year, the landfall of tropical storms in America added another dimension to the domestic petrochemical market.

Hurricane Harvey increased international PVC prices since some vinyl plants in the US have still not become operational creating a global supply crunch. On the other hand it also increased ethylene prices which are the core ingredient for the manufacturing of PVC. Since the downstream demand of PVC has been strong, overall local PVC manufacturers were positively impacted.

Paraxylene (PX) is the key raw material for PTA production which in turn is used to make PSF and PET. In recent months, crude oil prices crossed the $52 per barrel mark for the first since June 2015. This coupled with unplanned shutdowns of PX plants in the region resulted in higher PX prices.

On the other hand, unplanned extended outages in China created demand for PTA in the region which was further supported by higher demand from PSF and PET sector. Therefore higher PX prices were somewhat negated by higher PTA demand.

On the domestic front, there has been positive activity to support the petrochemical sector. Regulatory duty of 2 percent has been imposed on imports of PVC and 5 percent on the imports of PFY. Furthermore, preliminary anti-dumping duties have been imposed on import of PVC resin from China, Korea, Taiwan and Thailand, ranging from 11 percent to 42 percent.

The outlook for petrochemicals in the new year seems positive with increased downstream demand. PVC demand has been rising with market size increasing by 33 percent as estimated by EPCL. Increase in textiles creates demand for PSF and PFY. The recent implementation of the regulatory duty is expected to resume activity of idle capacity in the polyester sector. Furthermore, the import ban on recycled PET/polyester into China will create more demand for pure polyester.'

Copyright Business Recorder, 2018


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