Professional Documents
Culture Documents
April 20 2011
Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
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circumstances it might behave as a substitute for cotton e.g. high cotton prices
Crude Oil
Heavy Naphtha
Paraxylene
PTA
Polyester
Polyester Staple Fiber
PET Bottles
Filament Yarn
Film Resin
Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
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7%
26% 30% 36%
55% 37%
9%
PSF
Filament Yarn
PET
Film / Resin
PSF
Filament Yarn
PET
Film / Resin
Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
6
PTA Margins
PTA margin is a function of PTA cost and revenue drivers, in order to predict PTA margins we must first understand the factors affecting PTA prices and PTA manufacturing costs
PTA prices depends on demand and supply of PTA similar to other commodities, supply is fixed however
demand for PTA is positively effected by cotton prices
Primary revenue driver for PTA is cotton, provided that PTA is used as the feed stock for PSF production that acts as a substitute of cotton In wake of rising cotton prices demand for PTA becomes relatively inelastic as clothing is a necessity
therefore increasing cotton prices increases the PSF prices making cotton prices relatively more elastic
PTA utilises Px as the feed stock that in turn uses heavy Naphtha as the feed stock which is a derivative of crude oil, therefore major PTA cost driver is crude oil prices PTA cost is function of crude oil price Heavy Naphtha margins Px margins
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Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
8
Naphtha Margins
PTA Costs
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Px Margins
Naphtha Margin = 347.98 - 3.92 * (crude Oil Price) + 0.27 * (Px Price) Coefficient of determination of 0.76 indicates R Square = 0.76 that regression is statistically reliable
Regression Line Fit Plot with Crude Oil as Independent Variable
500 Naphtha Margins 500 Naphtha Margins
400 300
200 100 84 76 75 75 76 76 82 85 91 93 98 109
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Px margins is a function of Naphtha prices and PTA prices, therefore PX margins were regressed against Naphtha prices and PTA prices Px margins were regressed against Naphtha prices and PTA prices To calculate Px margins it was assumed 1 MT of Naphtha is utilised to manufacture 1 MT of Px Regression results are depicted below, according to regression results for 1 USD increase in PTA price Px margins increase by USD 1.03, provided that 0.67 MT of Px is required to produce 1 MT of PTA this relationship is logical sensitivity factor of -0.46 indicates that 1 USD increase in Naphtha prices reduces Px margins by USD 0.46, whereas USD 0.54 increase is transferred onto PTA manufacturers
Px Margin = -343.03 + 1.03 * (PTA Price) - 0.46 * (Naphtha Price) Coefficient of determination of 0.98 indicates R Square = 0.98 that regression is statistically reliable
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Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
12
Spinning margins
PSF demand is directly related to cotton prices as PSF is a substitute of cotton used by the spinning
industry
Higher cotton prices results in higher PSF demand, that may result in either higher PSF margins or
higher PTA prices, depending upon the bargaining power of PTA and PSF manufacturers
Higher bargaining power is a function of demand and supply gap
Higher demand supply gap for PSF as compared to PTA results in higher PSF margins or conversely it
results into higher PTA prices
Table of Contents
Introduction to PTA Value Chain
PTA Margins
Regression Output
14
Regression output
PTA margin is a function of Crude oil prices, Naphtha margins, Px margin, cotton prices, spinning margins and PSF margins PTA margins were regressed against crude oil prices, Naphtha margins, Px margins, cotton prices and PSF prices The reason for taking Naphtha and Px margins is that crude oil is the primary input in the PTA value chain rest is only value addition to the primary input Regression results are depicted below, according to regression results for 1 USD / barrel increase in crude oil price PTA margins decline by USD 2.89, provided that 5 barrels of crude are required to produce 1 MT of Naphtha this relationship is logical Naphtha and Px margins also decline PTA margins, for 1 USD / MT increase in Naphtha and Px margins respectively PTA margins decline by USD 0.58 and 0.01 USD respectively Relationship of cotton prices with PTA is noteworthy, for 1 US cent / lb increase in cotton prices PTA margins increase by 1.91 USD / MT Increase in PSF prices increase PTA margins by a small amount, for 1 USD / MT increase in PSF prices PTA margins only increase by 3 US cents / MT indicating that value addition is captured mostly by PSF manufacturers in form of increased PSF margins
PTA Margin = 400.44 - 2.23 * (crude Oil Price) - 0.01 * (Px Margin) - 0.58 * (Naphtha Margin) + 1.57 * (Cotton Price) + 0.03 * (PSF Price)
R Square = 0.90
PTA Margins Line Fit Plot with oil Price & Naphtha margin as independent Variables
PTA Margins Line Fit Plot with Px margins, Cotton & PSF Prices as independent Variables
PTA Margins
76
75
75
76
76
82
85
91
93
98 109
PTA Margins
280 235 215 245 305 415 480 475 660 745 800
Oil Price
Actual PTA margins Naphtha Margins Predicted PTA Margins Actual PTA margins Cotton Prices
Oil Price
Predicted PTA Margins PSF Prices