KARACHI, June 30: During the financial year ended June 30, 2004, performance of the polyester staple fibre (PSF) sector remained spirited with the demand-supply gap narrowing down to under 0.1 million tons recently.
This primarily ensued from higher textile sector requirements and PSF exports contributing to stability on the domestic price front and minimal disagreements taking place amongst manufacturers over upward price movements in an effort to increase volumes and grab market share.
Sector observers said that no incentives to the local PSF manufacturers were provided in the budget 2004-05 by the government in the form of reduced tariff on PSF and its raw materials.
PSF manufacturers were demanding zero rate of import on PTA raw materials and a 5 per cent reduction in duty on the finished product. Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets pointed out that sales tax had been reduced from 20 to the uniform 15 per cent. That would not have much bearing on the bottomline, though it would go to improve cash flows.
Mr. Abid stated that in the intermediate term, the demand-supply gap was expected to further narrow down, which bode favourably for the industry capacity utilization and profitability.
On the global front, petrochemical prices firmed up earlier on the back of rocketing of crude oil prices and increase in regional demand. Domestic PSF prices followed suit whereby prices were raised by Rs2/kg to Rs77/kg effective June 1, 2004.
The analyst stated that going forward, the receding of international oil prices from their 20-year high levels and softening of PTA and MEG prices would contribute to an improvement in PSF primary margins.
With the WTO regime to take effect from January 1, 2005, various industries were moving aggressively towards reducing input costs and improving production efficiencies to remain globally competitive.
One of the major producers of the PSF, ICI Pakistan proposes to expand its polyester fibre capacity by 15,000 tons. Presently the company produces around 110,000 tons of PSF with an 18 per cent share of the local PSF market.
The desire to expand capacity was fuelled by the rising demand of PSF in the local market. ICI has communicated its intentions to sell its stake in Pakistan PTA. An extraordinary general meeting to this effect has been scheduled on August 20, 2004.
The nine Months (July-March 2003-04) earnings of the other giant PSF producer, Dewan Salman Fibre stood at Rs246 million. Dewan Salman Fibre's three-quarters to end-March 2004 earnings had rocketed 11 times to Rs246 million compared to Rs22 million in the corresponding period of the previous year.
"Profitability growth has been driven by the growth in revenues emanating from higher sales volumes and prices," said the analyst. Overall gross margins also painted a pretty picture about the industry.
PSF industry capacity utilization during the period had improved on growth in polyester demand propelled by higher cotton prices and increased requirements from the value-added textile sector.
Financial charges also portrayed a falling trend on the back of Dewan Salmon's long-term debt restructuring amidst sharply lower borrowing costs. Moreover, Dewan Salman's 'Specialty Fibre Project' that commenced in October 2003 resulted in augmenting the company's production capacity by another 20,000 tons per annum.
