Prime Minister chided Cabinet Committee On Investment (CCOI) for putting up low intensity issues, particularly enhancing tariff from three per cent to 7.5 per cent for PTA, with the committee as it is simply a wastage of time because appropriate forums are available for such matters. While chairing the meeting of CCOI held on January 10th after nine years, PM said that Economic Coordination Committee (ECC) has already deliberated on the matter of import tariff of Purified Terephthalix Acid (PTA), so this may be referred to the committee of deputy chairman planning commission who should take all stakeholders on board and decide on the issue in 15 days.
PM was not happy with the Board of Investment (BoI) for putting up this matter at such a higher forum, while the finance minister also showed his dissatisfaction by saying that CCOI is not a forum for demand of any individual company. According to the minutes of the meeting, secretary BoI made a presentation aimed at enhancing tariff from three per cent to 7.5 per cent for PTA as the cost of PTA production in Pakistan is three to four per cent higher as compared to China and India, mainly due to high overhead costs. Therefore, PTA industry in reality requires protection as in China and India.
In view of the comparative tariff structure of six and five per cent in China and India, respectively, he recommended that the present three per cent tariff may be increased to the previous level of 7.5 per cent. To which, the finance minister pointed out that the subject was discussed in ECC where all agreed not to increase the tariff of PTA except BoI, while the committee of deputy chairman planning commission is already considering entire tariff structure and its report may be awaited. Secretary finance opposed the proposal of BoI as any change in tariff of PTA will disturb the tariff of whole chain and will be opposed by the producers of other value chain products. He proposed that National Tariff Commission (NTC) should study the proposal. Secretary textile also opposed the proposal of BoI as it will have serious ramifications for the downstream industry because PTA plant has already availed tariff protection worth Rs50 billion.
Deputy Chairman Planning Commission informed that a number of meetings were held on this subject. He informed that it was a government policy to rationalise and liberalise the tariff and not to increase in tariff. The plant of PTA was purchased by the company cheaply and made lot of profit in the last two years and has not lost anything, he added. Similarly, Chairman FBR informed that PTA was given tariff protection for 10 years at the rate of 15 per cent which was reduced to 7.5 per cent and three per cent in last two years, so the demand of the company is not viable as it will risk the entire chain.
STEADY MARGIN ATTRITION PINS EARNING GROWTH: After a strong start to the year, primary margins (PTA-PX) receded during the course of the year, and bottomed out at $140/MT in 4QCY11. For CY11, primary margins averaged $227/MT, implying 17 per cent YoY attrition. In addition to supply dynamics, international PTA prices mirrored the declining trend in international cotton prices, which stood at $0.95/lb in December 2011 after peaking at $2.29/lb in March. Following the same pattern, LOTPTA has seen its earnings steadily decline with 4QCY11 earnings expected to come in at a mere Rs0.04 per share. Aside from weakening primary margins in absolute terms, additional pressure will be exerted from the 4Q spike in rupee-dollar depreciation and inventory losses associated with declining PTA prices.
THE COIN IS RUSTY ON BOTH SIDES—CY12 OUTLOOK: Global PTA prices are expected to remain subdued in the upcoming year as 9.9 million tonnes of additional capacities are expected to come online. Furthermore, polyester demand is expected to bear the fallout of the Euro debt crisis in the form of faltering textile demand in the region. On the flip side, PX supply will not be able to match the startup of new capacities, as only 1.45 million tonnes of fresh capacities are expected to be added. 1QCY12 primary margins are also expected to come under pressure from the PX side, as a number of PX plants are expected to undergo their annual turnaround, resulting in tighter supplies.
In addition to the international catalysts, the ECC’s refusal to raise the PTA import tariff from the existing three per cent leaves LOTPTA without an additional security blanket to shield it from the international elements, said Ali Hussain at HMFS. It is to be noted that Lotte Pakistan PTA, Ltd (LOTPTA) is scheduled to announce its CY11 results on January 26, 2012, in which the company is expected to report Profit After Tax of Rs4,655 (Earning Per Share: Rs3.07) for CY11 versus Rs4,528 million (EPS:Rs 2.99) in CY10, depicting three per cent YoY growth.
