KARACHI: In view of the expected gas shortages in the winter season, Engro Polymer and Chemicals Ltd has signed an “interim agreement” with the state-owned Sui Southern Gas Company Ltd (SSGC) for the supply of fuel based on the industrial/commercial pricing for re-gasified liquefied natural gas (RLNG).

The company will buy the imported gas — whose rate is over three times higher than that of the locally sourced fuel supplied by the same state-owned utility — as per the price notified by the Oil and Gas Regulatory Authority (Ogra) from time to time on an as-and-when available basis.

According to Arif Habib Ltd analyst Rao Aamir Ali, the company is currently buying gas at Rs1,087 per million British thermal unit (mmBtu). However, the Ogra-notified rate of the imported gas or RLNG for November is $14.81 or Rs3,318 per mmBtu.

The threefold increase in the fuel cost will push up the price of polyvinyl chloride (PVC), a company product that’s among the most common polymers with extensive uses in industrial, technical and everyday applications.

“The company will have to increase PVC prices by $285 per tonne to fully pas on the impact of higher gas prices. However, due to lower international PVC prices, we assume the company will only pass on half the impact of higher gas prices,” said Mr Ali.

According to data compiled by AKD Securities, the international price of PVC hovered at $800 per tonne towards the end of last week, almost 50 per cent down from a year ago.

If the company absorbs the full impact of higher gas prices, its profitability will decline by Rs1.82 per share, said Mr Ali. The company’s earnings per share for the July-September quarter was Rs2.27.

In a briefing held for stock market analysts in October, company representatives said the month-long annual turnaround — in which the manufacturing facility goes offline for yearly inspection — of its PVC plant was planned for the end of 2022.

According to Topline Securities analyst Sunny Kumar, the company’s PVC sales went down 13pc on a quarterly basis to 50,500 tonnes in July-September.

The decline was because of the monsoon season and floods as 56pc of PVC demand caters to the pipe and fittings category.Global PVC prices dropped in July-September amid a slowdown in demand on the back of rising inflation as well as a Covid-19-related lockdown in China.

Published in Dawn, November 30th, 2022