Lotte Pakistan plans to increase plant capacity

Strong cash flows allow company to repay loan before time.

KARACHI:

Lotte Pakistan PTA, the sole maker of pure terephthalic acid (PTA), is planning to increase its plant capacity to 1.3 million tons from the current 800,000 tons, according to Topline Securities.

However, this depends on the custom tariffs for which the management is in discussion with the government.

The management, in its annual general meeting on Thursday, refrained from providing any timeline for the expansion, said Topline Securities analyst Furqan Punjani.

Industry demand for PTA, which is used in making polyester staple fibre, in the previous year stood at around 645,000 tons compared to production of 483,000 tons. The rest of the demand was met through imports.

Share price of the petrochemical company has increased 19 per cent in 2011, despite the Karachi Stock Exchange’s benchmark 100-share index declining 4.5 per cent during the same period.

Margins remained robust at $290 in 2010

Lotte’s profit on every ton rose by 18 per cent to $290 in 2010, compared with the preceding year’s $245, according to Topline Securities.

The management also informed investors that during the last three months of 2010, primary margins outclassed the whole year and jumped to $400 per ton amid higher cotton prices.

The margins would remain on the higher side in future as well, with demand outstripping supply due to slower PTA capacity additions during 2011 and 2012.

Recently, shortage of paraxylene, a major raw material for PTA, had been a major concern in the region, especially after few closures amid quake and tsunami in Japan. The management said that it will not be a major concern for Lotte Pakistan in the short term, as a major portion of paraxylene is imported from the Middle East and India. However, the increase in paraxylene prices may impact primary margins in the short term.

Early loan payoff

Strong cash flows from improved trading conditions led the company to repay $40 million of its $63 million loan acquired by the parent company, KP Chemical Corporation, in 2010. The loan was originally intended to be repaid as a bullet payment of the entire amount in 2012, said BMA Capital analyst Sana Bawani.

The early payment will cause a reduction in interest cost to Rs141 million in 2011 from Rs229 million in 2010. The remaining $23 million is expected to be repaid in 2012.

Published in The Express Tribune, March 26^th, 2011.