Petrochemicals and CPEC

The investment starved chemical sector received a boost when Engro Polymer announced its investment plans to the tune of Rs10 billion. The purpose of the investment is expansion of production of PVC, for which Engro Polymer is a market leader. The impetus of the investment is quiet clear given that the company posted its highest ever sales for the nine month period ending September 30, 2017.

World demand for PVC is primarily determined by construction activities. Globally, the production capacity for PVC is about 62 million tons in 2016, up from 8 million tons in 2012 showing the rising use of PVC. The most important applications for PVC are pipes and fittings that consume about 43 percent of PVC production. Other major PVC applications are profiles and tubes, rigid film and sheet, and cables all of which are used in construction.

Since construction activity is historically very low currently in Europe, PVC demand is being driven by India, Asia and Middle East; the biggest market for PVC at 47 percent is Northeast Asia. Construction activity in India led the PVC market to increase by 10 percent with pipes and fittings consuming 74 percent of production. It is heartening to note that the significant rise in India’s demand is still far below the rise in demand in Pakistan; EPCL estimates that Pakistan’s PVC demand has risen by 33 percent in the last quarter as compared to the same period last year.

As construction activities take off under the banner of CPEC, more and more industries will benefit. The rise of petrochemical intermediaries will provide opportunities for polymer industries and hence boost the plastics industry. The CPEC plan shared as yet, though obscure, does point to the necessity of setting up of petrochemical industries in the southern zone aka in Baluchistan.

Much has been said regarding the importance of a naphtha cracker being set up in Pakistan. In a recent interview that BR Research with Zubair Tufail, the chairman of Pakistan Chemical Manufacturers Association, he identified Engro Polymers as one of the companies that has enough clout and incentive to take the lead for the setting up of a naphtha complex (for more information read “Naphtha cracker to be set up in Pakistan in the next 5 years” published on December 22, 2017). He indicated that the complex will most likely be set up in Baluchistan. Though talk of the naphtha cracker has remained just that, talk, large scale investments in the chemical sector are steps in the right direction for its development.