By: Arif Habib Limited
Petrochemical margins (ex- PSF margins) improved during Sep-15, despite a recovery in oil prices, which rose 6.1% MoM (WTI). PVC and PTA margins increased by 8.7% MoM and 3.4% MoM, respectively during the month. Conversely, PSF margins were down by 4% MoM due to lacklustre demand for polyester (cotton prices fell 4.4% MoM, a natural substitute of polyester). The latest monthly figures are positive for LOTCHEM, however negative for ICI.
Despite short term gains in crude oil price, we retain our bearish view Oil prices rose 6.1% MoM in Sep-15 due to rising uncertainty in the global political climate, with the recent attacks by Russia on Syria exacerbating the upwards trend in oil. Despite the recent momentum, we believe that the odds are heavily stacked in favour of oil prices retaining their bearish gloom in FY16 (our expectations of USD 50/bbl. for Arab Light Crude for the year). Reasons for our view include (i) increased oil production by US, (ii) insipid demand from China, (iii) Iran’s re-entry following lift off of sanctions, and (iv) continued reluctance from OPEC (Saudi Arabia) in cutting supply in the fear of losing market share.
Bearish demand sentiment kept PSF margins down PSF margins were down 3.5% MoM (down 2.5% YoY) to USD 302/ton due to lower decline in MEG and PTA by 4.9% and 4.6% MoM, respectively. This was triggered by sluggish PET and polyester demand similar to observed in the previous months.