Driven by healthier by healthier PTA margins, Lotte Chemical’s top line and bottom line rose by double digits in the latest results posted by the company. The top line grew in part due to higher PTA prices which were up by 14 percent YoY. On average, for every increase of PTA margin $5 per ton results in approximately 16 percent positive impact on revenue.
The regional market, which had been witnessing a glut of PTA due to surplus in China, witnessed an improvement in demand as well due to capacity additions in the downstream PSF and PET industries, along with environmental controls in China. Maintenance shutdowns in some big Chinese PTA plants also alleviated the glut condition in the region for this quarter.
Furthermore, improved power availability and protection against dumping for the downstream sectors increased domestic demand which witnessed a 9 percent bump last year. Rupali Polyester Limited, a PFY plant resumed operations after being shut for four years which indicates that the polyester markets is gaining traction domestically. As a result, the increase in top line was driven by higher volumes along with higher prices.
In 1QFY18 the spread between PTA and PX was $150 per ton which was a 48 percent increase YoY on last year’s figure of $101 per ton, which enabled a triple digit increase in gross profit. Operational improvements took place because of the successful replacement of a key piece of equipment, the CTA Dryer which had deteriorated and was impacting productivity. Its replacement, as well as the overhaul of other equipment in the last quarter, contributed towards increase in efficiency. While distribution and selling expenses and administrative expenses decreased marginally as a percentage of sales, other expenses increased. Finance costs witnesses a huge leap mainly due to exchange losses. Effective tax for the quarter was at 57 percent due to reversal of deferred tax on minimum tax.