By: Arif Habib Limited
Petrochemical margins (ex. PX-PTA margins) improved during Aug-15 amid decline in oil prices (down 16% MoM). Both PSF and PVC margins rose 28% and 42% MoM, respectively during Aug-15. However, PX-PTA margins shrank by 22%. We see this as a positive for ICI and EPCL, while negative for LOTCHEM. To recall that, EPCL is producer of PVC and Ethylene is the raw material to produce PVC. ICI is producer of PSF for which PTA and MEG is raw material. Paraxylene (PX) is raw material of PTA and LOTCHEM is the producer of PTA.
Oil prices decline 16% MoM to USD 43/bbl: Average monthly crude prices (WTI) fell 16% MoM to USD 43/bbl, mainly as a consequence of soft demand from China, the largest oil importer. Depreciation of the RMB added fuel to the fire of investors’ woes, heightening perceptions that all was not right in the mammoth economy, thereby resulting in the slide in oil prices further. Though there was a recovery seen in oil recently, soft employment data from the US resulted in lower expectations of chances of Fed rate hike, which would have otherwise led to a stronger USD i.e. costlier oil imports. In addition, a great degree of consensus exists in the US in favour of the Iran deal, which would add yet more supply to oil market. This, we believe will further add to PSF and PVC margins as oil keeps its sliding trend.
PSF margins up 28% MoM to USD 340/ton: PSF margins increased by a massive 28% MoM (up 47% YoY) to USD 340/ton during Aug-15, at the highest since Jan-15. This is mainly due to decrease in PTA (12% MoM) and MEG (15% MoM) prices. With the decrease in crude oil prices (16% MoM), there has been a corresponding decrease in PTA and MEG prices.