Karachi August 27 2021: Lotte Chemical Pakistan Limited (LOTCHEM) has PKR 17.5 billion held in short term investments as of June 2021 accounts, as per information shared by the company through Pakistan Stock Exchange (PSX).
This translates into short term investment position of PKR 11.6 in terms of issued shares
Revenue for the quarter was higher than the corresponding period last year due to higher volume sold and higher PTA price. This coupled with higher margin resulted in a gross profit of PKR 1,649 million for the quarter as compared to gross loss of PKR 49 million during the same period last year. Distribution and selling expenses were 6% higher while Administrative expenses were 11% higher than the corresponding period last year due to overall impact of inflation. The taxation charge for the quarter is based on statutory income tax rate and tax under Final Tax Regime (FTR) as adjusted by the movement in the deferred tax account. Earnings per share (EPS) for the quarter stood at PKR 0.64 per share as compared to PKR 0.01 per share for Q2 2020.
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The Crude Oil (WTI) market witnessed a bullish trend throughout the quarter as major economies namely US, China and Europe eased lockdowns amid improved vaccine availability resulting in a demand boost. Additionally, the inconclusive US-Iran negotiations on the nuclear deal further bolstered the sentiment allowing prices to reach USD 74 per barrel, the highest in two years. However, the rising cases of Covid-19 in Southeast Asia and the Indian Subcontinent limited the upward movement. The average price for the quarter was USD 65.93 per barrel, up by almost 14 percent from the previous quarter.
Paraxylene (PX) prices followed an upward trend throughout the quarter on the back of firm Crude prices. However, the pace of the upward trend remained sluggish as actual demand in the region was yet to recover amid the resurgence of Covid-19 cases in Southeast Asia and the Indian Subcontinent. Several major producers in the region rationalized operations and planned shutdowns in order to maintain feasible margins. Towards the end of the quarter, the PX market gained momentum due to delay in the start-up of a new PX plant and an earlier-than-expected PTA capacity start-up in China. PX-Naphtha margins for the quarter averaged at USD 252 per metric tonne, whereas, the average PX price for the quarter was USD 855 per metric tonne. The PTA market largely followed the rising trend observed in the upstream markets, however, the rampant spread of the pandemic in the region kept the upward price movement in check. Despite the peak season demand, several PTA producers were forced to reduce operating rates and initiated shutdowns to maintain the supply-demand balance and positive margins.
Furthermore, the new PTA capacity addition of 3.3 million tonnes in China raised concerns of surplus supply in the region. The regional operating rate improved marginally in Q2-2021 to 74 percent from 73 percent in the previous quarter. The average PTA price for the quarter rose by 11 percent compared to previous quarter to USD 665 per metric tonne while the average PTA margin over PX for the quarter remained stable at USD 100 per metric tonne. The domestic polymer operations improved from 79 percent to 96 percent compared to the previous quarter due to improved local demand as well as consistent exports in the textile sector. The on-going vaccination process and consistent industrial operations resulted in stable PTA demand during the quarter. Operations Production and Sales volume during the quarter at 133,270 and 131,737 tonnes, respectively, were significantly higher than the corresponding period last year due to suspension of Plant operations for almost 54 days during Q2 2020 as a result of lockdowns to contain outbreak of COVID-19 pandemic.
In the second half of 2021, Crude (WTI) prices are expected to ease from current high levels as additional barrels are expected to enter the market while OPEC+ plans to gradually increase production. Moreover, the successful US-Iran negotiations shall further supplement supply and help ease prices. However, this downward price movement may inverse should the above factors fail to materialize. Going forward, PX market is expected to lengthen as a new capacity of 2.2 million tonnes in China is expected to start up by the end of July. With excess supply available in the region and the pervasive spread of virus variants affecting demand, the upstream Crude market will play a crucial role in influencing the price trend. The PTA market is anticipated to follow a cautious approach as downstream demand struggles to return to the pre-pandemic levels. Additionally, a new capacity start-up in China amid limited planned shutdowns in the region may add pressure to the fragile industry margins. The domestic polymer market is most likely to operate consistently backed by stable demand, improving economic activity as well as pro-investment and pro-business policies presented in Finance Act 2021.