Engro Polymer & Chemicals to enter hydrogen peroxide business with $23m investment

Engro Polymer & Chemicals Limited derives hydrogen as part of its caustic manufacturing process

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LAHORE: Engro Polymer and Chemicals (EPCL) on Friday announced it would enter the hydrogen peroxide business with a greenfield investment of $23 million.

In a notification sent to the Pakistan Stock Exchange (PSX), Engro Polymer and Chemicals said its board of directors announced to enter Hydrogen Per Oxide business through a greenfield manufacturing facility with a CAPEX of $23 million.

The project will be funded through internal cash generation.”

Furthermore, it said “Engro Polymer & Chemicals Limited derives hydrogen as part of its caustic manufacturing process. Currently, hydrogen is largely being used as fuel which is not the best value creation for hydrogen.

Also, the company said the board of directors also directed the management to evaluate further capacity expansion in this space and/or other avenues of diversification.

Adnan Sheikh Pak Kuwait Investment Co AVP Research told Profit, “EPCL has announced a $23m venture into the hydrogen peroxide business.

Based on the investment, plant size could be around 30-40k tons per annum.”

“Existing players like Descon and Sitara Chemicals get the supply of hydrogen by cracking natural gas which consumes a lot of electricity and costs these companies a lot more to produce as compared to Engro Polymer & Chemical, which will be undercutting it in that regard,” said Adnan.

“It can be estimated that around 30 percent of the cost is hydrogen and hydrogen peroxide has become a very lucrative commodity recently as international prices have nearly doubled in 2018 due to short supply,” added Adnan.

Furthermore, Mr Adnan said around 10,000-20,000 tons of hydrogen peroxide is imported and with dollar depreciation, local producers have even more room to raise prices.”

He believed the extent of EPCL’s investment could enable it to also export the commodity and save the country precious foreign exchange at a time when import bill has surged to record highs.

At end of last month, Engro Polymer had announced it signed a contract with Tianchen Corp China (TCC) for an integrated manufacturing facility with an annual capacity of 100,000 MT per annum for capacity expansion of PVC plant.

In the end of December 2017, EPCL had notified the Pakistan Stock Exchange (PSX), informing its board of directors had approved a capital expenditure of Rs10.3 billion for the addition of a new PVC Plant and various other projects.

Also, a major capital expenditure was approved by Engro Polymer’s BOD was for a new PVC plant having 100,000 MT (taking total capacity to 295,000 MT per annum) & VCM Plant debottlenecking of 50,000 MT per annum, with target completion in Q3 of 2020, the notification read.

The project was set to cost around Rs7.6 billion, which was to be funded through the issuance of right shares of approximately Rs5.4 billion and remainder Rs2.2 billion will be funded via debt.

Other capital expenditures of Rs2.7 billion were also given go-ahead was to be funded through a mix of internal cash and debt, which includes “new product line by adding caustic flaker of 20,000 MT per annum. CAPEX of the project is approximately Rs 0.34 billion with target completion in Q4 of 2018”.

Also, the notification had stated “Debottlenecking of Sodium Hypochlorite & Hydrochloric Acid Plants for local/export markets. CAPEX of the project is approximately Rs 0.15 billion with target completion in Q3 of 2018.”

Furthermore, Engro Polymer approved membrane replacement of current caustic soda plant to improve efficiency and production and the capital expenditure for this project is estimated to be around Rs0.6 billion, with a completion deadline of Q3 2018.

Engro Polymer & Chemicals Limited (EPCL) is the only fully integrated Chlor-Vinyl chemical complex in Pakistan.

It is a subsidiary of Engro Corporation, involved in the manufacturing, marketing and distribution of quality Chlor-Vinyl allied products and PVC under the brand name ‘SABZ’.

EPCL shares were trading at Rs33.31, up Rs0.18. KSE-100 index was trading at 40,890.78 points, down 375.61 points (-0.91 percent) at the time of filing this report.