'Bulk consumption can help PVC industry grow exponentially,' CEO, Engro Polymer & Chemicals Limited

Khalid S. Subhani is the President and Chief Executive Officer for Engro Polymer & Chemicals Limited, and Senior Vice President for Engro Corporation Limited. Besides Engro Corporation Limited, he is a Director on the Boards of various Engro subsidiaries, the Hub Power Company Limited, Laraib Energy Limited, and Pakistan Japan Business Forum. He is Chairman of the Board of Engro Polymer Trading (Private) Ltd.
He graduated from NED University of Engineering and Technology, Pakistan with a degree in Chemical Engineering and has completed programs on advance management from MIT and Hass School of Business Management, University of Berkeley, USA.
BR Research recently sat down with Khalid and discussed the PVC industry's issues in general and Engro Polymer's plans in specific. Following are the edited excerpts.
BR Research: Has your company been able to change the PVC consumption pattern in Pakistan?
Khalid Siraj Subhani: Earlier, PVC used to be imported. It involves a lot of variability and traders do not have enough money to take that kind of exposure because petrochemical commodity business is very cyclical in nature. Thus, downstream industry in Pakistan din't progress at all. PVC consumption was very low; when we started we were at approximately 30,000 tons of PVC consumption in Pakistan - lowest in the region and more and less at par with African countries, that's where we were!
PVC is known as poor man's plastic, all other plastics are very expensive and cannot be used for bulk order supplies or sewerage systems and housing schemes because the cost is very high. When we came in we brought stability to the prices, we used to absorb variability to a large extent so the downstream market doesn't get upset. We also did various market activities; we provided technical services to pipe industry on how they can grow, so much has been done during the last 7-8 years. As a result, our market which was at 30,000 tons earlier is today at 180,000 tons and is still growing. I believe, it has a huge potential to grow further.
Even today the PVC consumption in Pakistan is roughly around 0.6 kg per person, Bangladesh around 0.8-0.9, whereas in India it has gone up to 1.5 kg. We are still lowest in the region.
BRR: Why Pakistan's PVC consumption ranks as the lowest?
KSS: One of the key factors is that in our country PVC is not being used for bulk supplies and sewerage handling systems. This is the outcome of two things. First, sadly, the downstream industry is very fragmented, so no professionalism came in there and investment was low. Another issue is that it is price sensitive therefore quality assurance became a big issue.
Nowadays, private housing schemes are focusing on PVC. Bahria and DHA projects are creating good models for others to follow.
Also, the biggest sector where there will be bulk consumption will be the government sector because if you make pipes of 48 inches that means lots of consumption of VCM. It brings home many advantages. First, its end life is 50-60 years. Secondly, it brings down the pumping costs, whereas maintenance is easy and there is no deterioration as such.
BRR: How is PVC compared in terms of cost to the alternatives?
KSS: It's relatively higher, but if you consider all the plus points it brings, then it's a cheaper option. But then, one has to have a longer term view.
BRR: Who are your major customers in private sector?
KSS: We have started working with Bahria, DHA and Karsaz. Also, we have been working with KWSB as well. But I believe there is still a lot of untapped potential and there appears to be no reason why it shouldn't grow exponentially.
BRR: Consumption is India is higher. What's your view on it?
KSS: In India, PVC is used for more or less 80 percent pipes. In Pakistan, it's very negligible. So, when it comes to bulk consumption, we haven't been able to penetrate.
Currently, our production is limited to pipes only. In some developed countries, PVC is used literally for everything from windows to doors to flooring.
BRR: Is it a low margin business elsewhere in the world?
KSS: Commodities are everywhere a low margin business; margins are thin but volumes are very high. The difference is that in most of these countries, facilities are completely back-integrated. They make their own ethylene, VCM so there earn margins on every stage. Convertors on the extreme end are in precarious situation. Here, we are still in a relatively better position because we are making our own VCM. So anybody who is fully back-integrated has margins available of the entire chain, those not fully integrated are facing certain issues as supply demand fluctuates.
This business is cyclical in nature such that there are heavy losses in some years and then another few years you make up for all the losses. We hope that recovery should start now.
BRR: What is your view on having crackers in Pakistan?
KSS: I would say, 20 years before, it was viable when there were duty protections. Now, it has become very difficult. The reason being is that you are sitting next to the energy corridor. There are crackers operating all over Middle East at very high capacity and high margins and they dominate the world. For crackers there are two routes: one is gas crackers that require ethane gas. Here, we have more methane in gas than ethane so we can't opt for it. Second is neptha that comes out of crude oil, since we are more or less 100% importers of crude oil and at these prices, until and unless we are offered serious duty protections from government, it is not workable.
However, market size has grown to a level where you can put a medium sized cracker rather than one of a world scale. Since we are not energy rich country, competing with the world would be very difficult until heavy duty protection is provided. So we lost that opportunity long time back. India, however, grabbed the opportunity and was very active and put in those crackers.
BRR: Our market is not that bigger compared to neighbouring countries. So what are the issues in our industry?
KSS: If we look at it from the end usage point of view, worldly bulk of PVC gets consumed in pipes. And then countries which are developed are using it for windows, door, floors etc in housing schemes. Pakistan's market has certain glitches. We do not have construction standardisation in Pakistan and majority of the pieces are customised. That's where the problem comes in! In West, most of the items are standardised. Secondly, in Pakistan, grills are used everywhere, whereas in PVC window profiles, there is no provision for grills. It results in an issue in designing. Third, globally double glazing is used, whereas in Pakistan it is hardly being done.