Lotte PTA revenue may take a hit

Lotte PTA’s revenue will fall going forward with Purified Terephthalic Acid (PTA) coming under normal tariff regime and an expected cut in import duty from the current level of 7.5 per cent.

The Economic Coordination Committee (ECC) has withdrawn the SROs pertaining to monetisation of Purified Terephthalic Acid (PTA) duty to Polyester Staple Fibre (PSF) producers, however a final decision on the new tariff mechanism is yet to be announced.

Therefore, when the duty is either completely eliminated or reduced the PTA manufacturer would have to suffer to the same extent.

“Whether the import duty is completely eliminated or reduced, profitability for domestic PTA manufacturers would be adversely impacted,” said BMA Capital analyst Sana Bawani.

Moreover, global commodity price correction has also been resulting in declining margins on PTA, added Bawani in her research report.

PSF producers to change strategy

With the new tariff structure in place from July 10 onwards, the downstream industry using PTA as a raw material for the production of Polyester Staple Fibre would not monetise the import duty on PTA, said Bawani.

Thus it will result in an increase in their production costs and reflect in a decline in their profitability, added Bawani.

However, a certain proportion is expected to be passed on to the consumers in shape of higher PSF prices.

PTA spreads on a downtrend

With the regulatory regime currently not working in favour of PTA manufacturers, the declining PTA primary margins stand to be another concerning factor for Lotte PTA. The margin currently stands at $202 per ton compared with $312 per ton and $277 per ton in April and May respectively. Similarly, primary margin is hovering around $264 per ton in the ongoing quarter from $282 per ton in the same period last year. The decline has come on the back of lower PTA prices which have fallen by over three per cent on quarter basis.

PSF margins moving north

Lower PTA prices eventually result in better margins for PSF makers.

However, it is pertinent to note that PSF prices have also declined slightly as the product belongs to the same chain of petrochemicals. Yet margins have registered an increase to $469 per ton in June 2010 compared with $415 per ton in May. The key reason behind the improvement in margins is the decline in PTA prices.

Published in The Express Tribune, June 24^th, 2010.