Recent developments in the Middle East, particularly the Yemeni Houthi attacks targeting commercial vessels, are causing significant disruptions in global trade.
The conflict has forced shipping companies to adopt longer routes to avoid the Red Sea, leading to a surge in freight charges and impacting various sectors.
The Intermarket Securities Limited (IMS) in its recent research report stated that the ongoing situation poses varying implications for different sectors in Pakistan.
The Pakistani oil and gas sector, particularly companies like POL and OGDC, could benefit from rising international oil prices. Their revenues are directly linked to the international oil price basket, making them poised to benefit from any price increases.
The disruption could adversely affect Pakistan’s fertiliser sector, especially for imported fertilisers like DAP. Companies such as FFBL, which rely on imports via the Red Sea route, face potential supply chain challenges which may lead to higher DAP prices in local market.
Chemical sector will also be hit and key commodities in this sector, including ethylene, propylene, and polymers, are likely to see price increases, affecting the margins of companies like EPCL and LOTCHEM. Higher freight charges and increasing feedstock prices could also impact gross margins.
The textile industry risks delays in fulfilling orders due to higher lead times and freight charges. Companies like ILP, NML, and GATM may face increased distribution costs and the need for higher short-term borrowings to maintain inventory levels.
The cement industry could face challenges in export viability and increased costs for imported coal. South-based companies like LUCK, DGKC, and ACPL, which rely more on imported coal, might experience adverse effects.
Potential delays in scrap imports could result in increased steel scrap prices, raising working capital needs and prompting higher short-term borrowings for steel companies.
The report noted that while some sectors like E&P may see positive effects, others like the fertiliser, chemical, textile, cement, and steel sectors could face significant challenges due to the ongoing Red Sea crisis.
Approximately 21,000 vessels annually passing through the Red Sea and Suez Canal, carrying commodities such as crude oil, LNG, chemicals, and coal, the recent attacks have led to an estimated 40-50% of ships diverting from this critical route.
This shift in maritime traffic is raising concerns over a potential commodity super-cycle, driven by increased freight charges due to rerouting and possible shortages leading to higher global commodity prices.
