Karachi August 24 2023: Lotte Chemical Pakistan Limited anticipates that the latter half of 2023 will pose challenges for the company, attributing them to diminished profit margins and a decrease in demand.
Anticipated developments in the second half of 2023 point towards a potential upward trajectory in Crude Oil (WTI) prices. This projection is rooted in the sustained reduction of production by OPEC+, which could lead to a notable supply deficit. However, the overall outlook is tempered by lingering concerns over global demand weakness and the consequential possibility of major economies increasing interest rates, which will act as a constraining factor on the price surge.
Projections for Paraxylene (PX) prices indicate an upward trend in the upcoming quarter. This inclination is bolstered by the rising Crude Oil prices upstream and heightened demand, particularly in contrast to capacity expansions within the downstream PTA sector. Nevertheless, an expected market elongation upon the re-commencement of PX assets after maintenance activities could potentially limit the extent of price fluctuations.
Forecasts for PTA prices point towards a descending trend, driven by the market’s predicted tapering subsequent to the conclusion of the peak season. Additionally, the persistently unfavorable demand sentiment in the face of a bleak macroeconomic panorama will sustain its impact on prices, consequently applying pressure on profit margins.
The domestic Polyester market is poised to grapple with ongoing economic challenges, primarily stemming from uncertainties surrounding energy costs and their availability. This is compounded by persisting cash flow issues. The combination of reduced consumer expenditure amidst unprecedented inflation, coupled with a fragile global economic recovery, introduces a significant risk to domestic manufacturing operations.
The Company had to keep operations suspended till the end of April after taking the plant offline in mid-March due to unavailability of raw material on account of economic situation prevalent in the country. As a result, Production volume during the Q2 at 71,538 tonnes was 46 percent lower than the corresponding period last year while Sales volume, comprising of domestic sales only, at 62,054 tonnes was 53 percent lower than the corresponding quarter last year.
Revenue for the Q2 was 45 percent lower than the corresponding period last year mainly due to lower volume sold. This resulted in a lower gross profit of PKR 2,000 million for the quarter as compared to gross profit of PKR 5,996 million during the same period last year
Distribution and selling expenses were 24 percent higher than Q2 2022 while Administrative and general expenses were 28 percent higher than the corresponding period last year due to overall impact of high inflation.
The taxation charge for the quarter is based on statutory income tax rate, tax under Final Tax Regime (FTR) and super tax as adjusted by the movement in the deferred tax account. The taxation charge also includes prior year tax charge as a result of retrospective increase in the rate of Super tax from 4 percent to 10 percent from Tax year 2023.
Earnings per share (EPS) for the quarter stood at PKR 0.21 per share as compared to PKR 1.84 per share for Q2 2022.
