EPCL to post EPS of PKR14.2 in CY21

News Desk

BMA capital has estimated EPCL and Lotchem earning per share (EPS) to PKR 14.2 and PKR 2.6 respectively for CY21.

Incorporating the latest financial results and chemical margins assumptions, we revise our CY21 earning per share (EPS) estimates to PKR 14.2 and PKR 2.6 for EPCL and LOTCHEM, respectively, BMA capital said.

The global petrochemical market is bracing for another global supply chain squeeze as Hurricane Ida sweeps across the U.S. Gulf Coast, forcing several PVC plant outages in the region.

Read More: EPCL increases the price of PVC by Rs 140 per bag

Hence, we may see PVC margins rise in the short-run (currently at USD 860/ton, 12% since CYTD) given the global supply-chain disruptions.

On the other hand, PTA margins continue to remain range-bound due to supply-demand imbalance.

We reiterate our BUY stance on LOTCHEM with a Jun’22 TP of PKR 21 (upside of 46%), whereas we currently have a HOLD stance on EPCL with our Jun’22 TP of PKR 67 (return of 12%), BMA Capital said said.

However, we may witness price performance in EPCL due to possible margins accretion post-Ida.

PVC margins to rise post-Ida storm: Petrochemical plants across the U.S. Gulf Coast, including Formosa Plastics, Westlake Chemicals, and Shintech, was forced to shut down recently as the extensive Ida storm disrupted energy markets. Around 41% of the total 8.3Mn tons of U.S.

PVC capacity has gone offline as a result, and the outages could be lengthy depending on the power situation and damages.

Read More:PTA margins for LOTCHEM increased to $160 per ton

The supply of PVC products was already narrow pre-storm amidst strong demand from the construction sector, evident by the massive surge in prices (currently at USD 1,340/ton,  1.9x FYTD) since the two hurricanes enveloped the region in 2HCY20 followed by the winter storm in North America this year.

On the other hand, ethylene prices may also rise as about 6.5Mn tons (16% of total) of U.S. capacity was shut down during the storm, but they are expected to decline largely due to new cracker start-ups in South Korea.

Hence, we may witness a surge in PVC margins in the short run depending on the restoration of operations post damage assessment.

However, our long-run assumptions remain intact at over USD 400/ton as supply/demand dynamics normalize. Note that new PVC capacities of 0.5Mn tons (Shintech and Formosa Plastics) are also likely to come online in U.S in 2HCY21, which may help ease margins in the medium to long term.

Weak demand and new capacities to keep PTA margins under pressure

PTA margins have largely remained range-bound lately (currently at USD 132/ton) owing to supply-demand imbalances.

PTA prices are hovering around USD 745/ton ( 3% MTD) due to weak Chinese downstream fundamentals amidst the country’s recent flare-up of COVID infections.

Additionally, the new PTA capacity start-ups (second unit of Yisheng Petrochemical to come online by the end of CY21 with a capacity of 3.3Mn tons) have raised concerns of surplus supply in the region.

Alternatively, the PX prices are trading near USD 914/ton, trending down by 4% MTD, which has supported primary margins.

Going forward, PX prices are likely to remain volatile in the near term with planned capacity addition of around 2.5Mn tons by Zhejiang Petrochemical in 3QCY21 and higher crude oil prices due to the supply crunch caused by the recent storm.

Overall, we have a stable to a bearish outlook on the primary margins in the near to medium term, depending on the upstream paraxylene and oil prices movement.

EPCL – Margins upcycle to bolster earnings growth

 We expect EPCL to showcase stellar earnings show in CY21 in the backdrop of a healthy demand outlook amidst several generous construction sector incentives offered by the government and margins upcycle (12% CYTD), BMA Capital said.