EPCL- PVC prices to recover

Engro Polymer and Chemicals (PSX: EPCL) announced its financial performance for 1HCY22 recently, and the company’s consolidated earnings were seen falling by three percent year-on-year. The slight decline in earnings was witnessed by the company despite noticeable growth in revenues.

EPCL’s consolidated revenues in 1HCY22 grew by 49 percent year-on-year, which was due to growth in volumes and currency depreciation. The company achieved highest ever 1H PVC sales in CY2 with growth of34 percent in 2QCY22. However, international PVC prices dropped especially in 2QCY22 due to the slowdown in the Chinese economy amid COVID and monsoon season in India. At the same time, ethylene prices remained weak during 2QCY22 due to bearish oil and naphtha outlook, and well supplied market. Caustic soda volumes slipped by 22 percent during 2QCY22 ona year-on-year basis due to lower demand and unavailability of product due to gas curtailment.

There was three times increase in other expense in 1HCY2 for EPCL, primarily due to exchange losses. Finance cost increased as well due to higher interest rates during the period. Earnings were also restricted by imposition of Super Tax in 2QCY22 which increased tax expense for the period under review.

Where on one hand, local demand is expected to falter given the current economic situation in the country, the company believes that the demand for PVC will improve in the coming months as global consumption recovers in China and monsoon ends in India. This will lift PVC prices. Prices ethylene too will recover slightly as demand in China recovers in the coming months.