Engro Polymer & Chemicals Limited (PSX: EPCL) released its 1QCY23 yesterday, which saw a decline in the quarter’s consolidated earnings by 75 percent year-on-year.

Even though the global PVC prices were seen increasing during the first two months of 2023 due to renewed demand and restocking from India; PVC prices declined in the March due to slower than expected recovery from China and an oversupply situation in India. Similarly, the Ethylene prices also witnessed an uptick due to lack of supply in China; but prices declined in March because of weaker crude oil prices. In terms of volumetric sales, EPCL’s PVC volumes declined by 22 percent year-on-year due weak PCV demand amid slowdown in construction and economic activity. The volumetric sales of caustic soda also dropped 18 percent year-on-year.

Beside the topline squeeze, EPCL also witnessed a contraction in gross profits, and gross margins dropped from 33 percent in 1QCY22 to 20 percent in 1QCY23. This decline in gross profit was due to higher gas prices. However, the decline was restricted by the depreciation in the currency during the quarter (1QCY23).

Where growth in other income was three percent year-on-year and other expenses declined, the finance cost pulled down EPCL’s net earnings with a jump of 92 percent, year-on-year.

In its analyst briefing, the management of the company also highlighted that PVC price stability depends on the alleviation of the geopolitical and recessionary tensions as well as recovery in China. Similarly, the management expects the Ethylene prices to be driven by crude oil prices and OPEC+ decisions. Both these factors are volatile as of now, which means the coming quarters might continue to show a similar trend – not to forget the rising inflation that will continue to squeeze the margins.