Karachi: Engro Polymer & Chemicals Limited (EPCL) navigated a challenging economic landscape in the first half of 2024, grappling with fluctuating international PVC prices, subdued domestic demand, and inflationary pressures. This period saw the company facing a 6% decline in revenue year-on-year, primarily due to decreased international PVC prices and a slower domestic market, although this was partially offset by increased caustic soda sales domestically.
During the second quarter of 2024, PVC prices surged to $980 per ton due to heightened global freight costs triggered by supply chain constraints. However, demand remained weak, particularly in major markets such as China, where the real estate and construction sectors slowed significantly. Similar trends were observed in India, largely affected by the monsoon season. The global operating rates for PVC stood at 75%. By July, PVC prices began to normalize, reaching $810 per ton post-recovery from port congestion issues.
According to information available from the Pakistan Stock Exchange (PSX), in the core product segment, ethylene prices showed a downward trend from March's high of $1,038 per ton to $930 per ton in June, due to weaker downstream demand and falling crude oil prices. However, prices rebounded to $1,000 per ton post-July, influenced by plant shutdowns and continuing port congestion caused by adverse weather. The prices are expected to remain range-bound moving forward.
In terms of business updates, domestic demand for Poly Vinyl Chloride (PVC) was notably low during the first half of the year, hampered by ongoing construction sector downturns, political instability, and an unfavorable business climate compounded by high inflation and rising energy costs. Despite these challenges, EPCL implemented various incentives to boost market confidence and adopted competitive pricing strategies, which resulted in a 13% quarter-over-quarter increase in PVC sales volumes.
On the Chlor Alkali front, international caustic soda prices remained stable in the second quarter, reflecting limited activity in international markets. Domestic demand, however, weakened due to struggles in the textile sector, impacted by high energy costs and inflation. Nevertheless, demand from the export-oriented denim sector improved during the period. EPCL maintained its presence in the export market to facilitate foreign exchange inflows, keeping supply to domestic Export Oriented Units steady at 78%.
In terms of consolidated financial performance, the decline in EBITDA from the previous year was primarily attributed to the lower core delta and inflationary pressures. Furthermore, increased short-term borrowings necessitated by rising inventory levels and broader macroeconomic challenges adversely impacted the company’s profitability, reflecting in the performance adjustment trends.