Lotte to build $400m petrochemical plant

Demand for company's product expected to increase.

KARACHI:

The Lotte Group is planning to invest $400 million for establishing a petrochemical plant in Karachi which will triple its production capacity to 1.5 million tons, according to IGI Securities.

The Group will start expansion work in the second half of the current year.

Lotte Pakistan PTA is a supplier of purified terephthalic acid (PTA), an essential raw material used in the polyester fibre industry. Over 30 per cent of PTA is sold to the polyethylene terephthalate (PET) sector while the rest goes to the polyester staple fibre and other sectors. PET is used in the plastics industry for the production of bottles and bed sheets. Earlier this year, the group made a commitment to invest $5 billion in a petrochemical plant in Indonesia.

Demand for PTA is expected to increase as global demand for polyester staple fibre is growing six per cent annually, said IGI Securities analyst Suleman Maniya.

Polyester staple fibre (PSF) is widely used as a substitute for cotton yarn, as raw cotton prices are touching new peaks regularly. Consumers have traded down from the premium 100 per cent cotton products, ensuring solid demand for the synthetic fibre.

Bigger plants will help generate greater economies of scale while excess production can be exported to India, Central Asia and Russia via land route, Maniya said. Economies of scale is the cost advantage that a business obtains due to expansion.

Pakistan is currently deficient in PTA, with Lotte Pakistan being the sole domestic producer. This deficiency may increase further once expansion of Ibrahim Fibre – a leading PSF manufacturer –comes online, said Maniya. The company is expected to expand its PSF manufacturing capacity to 1,250 tons per day from the current 650 tons per day.

Published in The Express Tribune, March 4^th, 2011.