The unhappy symbiotic relationship between the chemical and textile sector has been discussed earlier in this space (“Textile and chemical conflicts – H2O2” published 13 March, 2018).
While the sectoral woes of hydrogen peroxide are creating waves currently, the tribulations of PTA and the resultant trials of its downstream product polyester staple fiber (PSF) continue meandering along their course as they have been doing so for the last decade.
The primary manufacture of PTA in Pakistan is Lotte Chem. A recent conversation with its CEO highlighted its reasons behind its abysmal bottom line between 2012 and 2016 when it experienced losses at worst and 2 percent net profit margin at best. PTA prices are governed by international trends due to the imports of its key raw material paraxylene which is not manufactured in Pakistan.
Unlike EPCL, that can link the price of its petrochemical PVC to international prices, Lotte is led by domestic forces. Dumping from China allow its consumers, PET and PSF alike, to set the prices due to intense international competition making Lotte depend heavily on its tariffs at 16 percent for protection.
If those tariffs were removed, as demanded by the PSF sector, Lotte would be forced to shut down and the.
Lotte’s capacity of production of PTA is 500,000 tons whereas the demand is about 800,000 tons.
The gap is filled through imports which become expensive due to tariffs. Lotte contends that if tariffs were removed, it would be forced to shut down and that will allow Chinese exporters to charge exorbitant prices. However, these tariffs increase the cost of fabric and impact the growth of the polyester fibre industry since for one MT of polyester fiber production, around 85 percent of PTA is used.
While tariff protection of PTA is protested against by the PSF industry, it too in turn needs protection from low priced PSF imports. Till last year, the local PSF prices were more than $1.25 per kg whereas the cost of the Chinese product was less a dollar. Currently, it is protected by anti-dumping duty in the rage of 2.8 percent to 11.5 percent in addition to 11 percent tariffs. Similar to Lotte, the PSF industry contends that if protectionist measures were removed, the industry would collapse and Chinese exporters will take advantage and drive up prices.
Further down the petro-chemical and textile chain are the textile manufacturers and exporters who blame the PSF industry for having local prices significantly higher than international prices. As a result, while the world moves towards polyester based apparel (“Changing trends in textiles”, published on October 26, 2017), Pakistan’s textile industry ratio of man-made fibers to cotton is still at 80:20.
Throughout the textile value chain there is protectionism that the downstream industries protest against while demanding similar measures for their own sectors.
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