PTA demand may grow to 0.69m tons by 2013

Faseeh Mangi April 09, 2010

KARACHI: Demand for pure terephtalic acid, a raw material used to produce polyester staple fibre, may grow to 690,000 tons by 2013, boosting profit at Lotte Pakistan PTA Ltd, according to a report by KASB Securities.

Lotte PTA, the only producer of this product in the country, has a capacity to produce 507,000 tons. This growth is predicted due to positive foreign exchange correlation, cost reduction effort, potential savings from upcoming captive power plant and debt-free balance sheet, KASB Securities, analyst, Muhammad Saqib Sajjad said.

Demand up-tick and cash holdings are encouraging LOTPTA to consider an expansion of 500,000 tons. If this materializes it should add Rs5 per share to our base-case price offering according to Sajjad. “The stock has rallied 308 per cent in a 12 month period, we believe it offers further 41 per cent upside to our price offering and an attractive 15 per cent dividend yield,” according to KASB.

Due to continuous demand of polyester fibre from China and India, the margins for PTA producers across the globe improved to $280 per ton in the first quarter of 2010 against $220 per ton in the fourth quarter of 2009, according to Topline calculations.

The new quarter starting from April brought more good news as PTA prices reached near $970 per ton, Topline reported. LOTPTA has successfully reduced conversion cost from $148 per ton in 2008 to $89 per ton in 2009. It has rationalized overheads, lowered financing costs and improved cash cycle.

KASB Analysts expect further saving from captive power plant and catalyst recovery unit coming online in 2012. Lotte Pakistan PTA Ltd., lost Rs0.52 to close at Rs12.8, after Muhammad Saqib Sajjad, an analyst at KASB Securities Ltd., advised investors to buy the shares in new coverage