Lotte’s top line grew sluggishly despite higher demand and higher international PTA prices. Though its bottom line grew by double digits, the profit after tax was below expectations.
Similar to the other petrochemical mammoth in the industry, Engro Polymer, Lotte saw a dip in the quarter-on-quarter performance though the year-on-year results grew. The QoQ decline is not a surprise since by the end of 3QFY17, crude oil prices crossed $52 per barrel for the first time since June and as a result, paraxylene prices rose as well. This resulted in lower margins with average margins in 3QCY17 at $320 per ton as compared to 2QCY17 average of $369 per ton. This trend appears to have carried on to 4QCY17.
Overall however, Lotte’s revenue grew due to higher international PTA prices that increased on average by 8.8 percent in the last calendar year, as per AHL Research. Similarly, higher spread between PTA and paraxylene in the first half of the year helped drive the increase in gross profit margin. Having said that, internationally the PTA margins increased by nearly 16 percent, indicating that Lotte’s margins were below expectations.
The volume of sales grew marginally over the year, up by 1 percent since last year, and by 2 percent in the last quarter as compared to 3QCY17. The low rates of growth come somewhat as a surprise since PTA is the primary raw material for producing polyester fiber and polyester filament yarn. Therefore, the up-tick in the textile sector should have supported growth more. Furthermore, the last calendar year saw a rise in Polyethylene Terephthalate exports, which is a downstream product of PTA.
Among expenses, the most significant rise came in finance costs. This was expected since devaluation of currency resulted in exchange losses.
Moving forward, the market trends are positive for Lotte. The recently announced import ban on recycled PET/polyester into China is expected to create more demand for pure polyester. Besides, since value added textile exports have seen growth as per the latest figures posted by PBS, PSF demand is expected to maintain.