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AnalysisSSESSMENTS: Detailed Analysis of COVID-19 Impact On Business, Polymers Demand in Pakistan

Author: SSESSMENTS

Summary:

  • Lockdown has impacted the Pakistani industry which is a major account of state economy
  • Polymer market in Pakistan is experiencing a downturn due to low demand
  • Pakistan expects economic contraction until end of the year after COVID-19 pandemic
  • Government has provided an economic stimulus up from early March

Pakistan first announced that its citizens had contracted COVID-19 on February 26 with the first death caused by this virus occurring on March 20. The number of confirmed cases by May 8 is in 24,644 cases, with a recovery rate reaching 6,464 people.

Anticipating the spread of COVID-19, partial lockdown is implemented since mid-March with a national lockdown starting on April 1. Lockdown causes all factories and their supporting facilities to stop operating. The remaining limited activities, such as "moving goods back and forth between the ports and manufacturing hub are still allowed, but there simply aren't many goods to move," according to sources quoted from Pakistan.

The closure that occurs in the middle of the month causes the level of industrial production to only reach half or lower of the capacity per month. It created an industry-wide liquidity crunch. While the government later requires that March salaries of workers be paid fully, the industry has said they will take their hands off regarding workers welfare in the following month if there are no concrete steps.

COVID-19 exacerbates Pakistan's already fragile economy, where internal demand has been suppressed for two years due to rising interest rates and depreciation of rupees. The report in February 2020 when COVID-19 had not an impact gave a particularly suffocating picture, especially for Large-scale Manufacturing (LSM). Government spending for the public sector which is lower than the previous year, a slowdown in private construction activities and a small consumer expenditure on durable goods causing Pakistani LSM recorded 3.03% of the contraction for 9MFY20.

The nationwide lockdown, which was supposed to end on April 15, was later extended to April 30.  Lockdown losses can reach a figure of PKR2,5 trillion ($15.6 billion), results from government assessment announced on April 2. State Bank of Pakistan (SBP) also said that Pakistan's growth would hold for the first time since 1952. SBP released a report that Pakistan GDP would contract by 1.5% in 2020 with 1-2% of the possible growth in the following year. A sombre assessment given by the International Monetary Fund (IMF) states that Pakistan's growth could contract by 1.5% in FY2020 with the World Bank predicting a decline of 1.3% with the possible growth in the following year is only 1%.

To rescue and re-stabilize the country's economy in the face of COVID-19, the government led by Prime Minister Imran Khan on March 24 agreed to release an economic stimulus package aimed at all sectors of the economy amounting to PKR1.2 trillion ($7.4 billion). The economic stimulus package could occur after additional financing of $3.7 billion from three multilateral creditors: $1.4 billion from the International Monetary Fund (IMF); $1 billion from the World Bank; and $1.25 billion from the Asian Development Bank.

As part of the stimulus, the government is giving citizens PKR3,000 ($18) for a four months period through its main social program (BISP program). Particular stimulus program for vulnerable people (Ehsaas program) also issued with households received Rs12,000 ($74) to support consumption during the lockdown. Both programs will bear as much as 12 million families who also receive benefits from oil price slash and provision of relief for electricity and gas bills.

The central bank also offered a one-year extension on business loans. The number of deferred loans reached more than Rs1 trillion ($6,2 billion) consisting of 250,000 borrower subjects. Besides, the Pakistani central bank is also giving concessional financing to companies that retain workers during this pandemic. The latest policy of SBP by cutting the benchmark interest rate to 9% makes Pakistan the most aggressive country in the world to reduce its base point up to 425 bps since March 17.

On April 15, an exception is given to the agriculture sector and industries with export obligations, to operate partially. This development is essential considering that approximately 64% of GDP and 75% of employment of Pakistan come from industry. The urgency to consume domestic commodities, especially oil, is also encouraged from this time. The government asks industry players to stop importing crude and its derivatives for this April after national oil plants are closed because of overstock. According to CEIC data, Pakistani Petroleum import was reported at PKR 105.895.000 ($661,250) in March 2020, a fall from the previous number of PKR 169.821.000 ($1 million) for February 2020.

The conditions experienced by Pakistan's industries have an impact on their Polyethylene (PE), Polypropylene (PP), and Polyvinyl Chloride (PVC) market, which is experiencing upheaval after starting the year well. The demand for both PP, PP, and PVC is stable compared to December 2019 demand. The price was controlled through February even though oil prices fell after being aided by the closure of the plant from Middle Eastern suppliers due to maintenance. Also in the same period, Vietnamese PP cargoes started entering Pakistan market due to sluggish conditions in China. However, after the coronavirus issues and followed with another drop in crude oil prices, buyers are confused. "Everyone is very cautious and concerned. They don't know where the market will go and prefer to take a step back and wait and see," a Pakistani trader told SSESSMENTS.COM.

The automotive industry, as the dominant polymer consumer in Pakistan, said it had suffered losses where sales and production of cars were dipped by almost 50% respectively during the first three-quarters of the FY20 as compared to the corresponding period of last year. As many as 85,330 cars were sold against the sale of 160,359 units last year while the production of vehicles decreased from 170,118 units to 88,628 units, according to the Pakistan Automobile Manufacturing Association (PAMA) data.

Pakistan imports for plastic Materials was reported by CEIC at PKR 26,016,000 ($162,454) in March 2020, a decline from the previous number of PKR 31,283,000 ($195,343) in February 2020. The demand which has been weakening while supply not running generally with the supplier inventory skyrocketing has caused price reductions to occur for polymers' products across all grades. Overall, market players opined that the outlook for the polymer market in Pakistan remains gloomy in Q2 since the lockdown might be extended again depending on the severity of the ongoing outbreak. Additionally, the country's economy predicted to stay low in Q3 if the Coronavirus pandemic ended this year.

Tags: All Feedstocks,All Plastics,All Products,Analysis,Asia Pacific,Crude Oil,English,ISC,Pakistan,PE,PP,PVC

Published on May 8, 2020 10:39 AM (GMT+8)
Last Updated on May 8, 2020 10:39 AM (GMT+8)