Govt revises protectionist policy stance on PTA

Earnings of Lotte PTA Pakistan are expected to take a serious hit due to a reduction in the import duty on PTA.

KARACHI: Earnings of Lotte PTA Pakistan (LOTPTA) are expected to take a serious hit due to a reduction in the import duty on Purified Terephthalic Acid (PTA). Analysts expect their earnings to decline by anywhere from 24 to 50 per cent as they meet around 63 per cent of the country’s local PTA demand.

This chemical is used as a precursor to the polyester Polyethylene Terephthalate (PET), used to make clothing and plastic bottles. The Economic Coordination Committee has reduced the duty on it from 7.5 to three per cent.

This was done to lower prices of raw material used to make Polyester Staple Fibre (PSF) and Polyethylene Terephthalate (PET) as downstream industries had been clamoring for this change for the last couple of months.

The prices of polyester and PET had gone up as the government had withdrawn monetisation of PTA customs duty on PET and Polyester Staple Fibre (PSF) manufacturers.

Revising protectionist policies

Lotte PTA was provided a protection of 15 per cent from around 1998 the 2008. Later on, this was reduced to 7.5 per cent from the fiscal year of 2009. Now import duty on PTA has been reduced to 3 per cent.

“With reduction of import duty on PTA, the company’s protection will be reduced from $64 per ton to $25 per ton. Hence the company’s 2010 earnings will reduce by 24 per cent to Rs1.6 per share while 2011 earnings will be revised downward by 50 per cent to Rs0.9,” said Topline Securities analyst, Furqan Punjani.

Uncertainty is finally over

“Following the roller-coaster ride of the last one month, we lower our earnings per share estimates by 23 to 29 per cent because of regulatory risk like cut in customs duty and lower PTA prices raising risk of timing losses,” said KASB Securities analyst, Muhammad Saqib Sajjad.

Some good news

Strong second quarter 2010 estimated earnings per share of Rs0.61, decent primary margins of $250 to $270 per ton, potential EU investigation benefit to PET industry and buoyant PSF demand are some of the positives that remain amid the plethora of bad news .

Published in The Express Tribune, July 22^nd, 2010.