Why Petrochemical Profits are on a Downward Trend by JS Global

The Shrinking Profit Margins in the Chemical Sector

A recent report from JS Global Research highlights a significant challenge facing the petrochemical industry: declining profit margins. In this sector, a key measure of profitability is the “core delta,” which is the difference between the cost of raw materials and the selling price of the final chemical product. When this delta shrinks, so does profitability.

This analysis will examine the two primary product groups feeling the pressure: Polyvinyl Chloride (PVC) and its raw material Ethylene, and Purified Terephthalic Acid (PTA) and its raw material Paraxylene (PX). While distinct products, their stories are intertwined, revealing a sector-wide vulnerability to global macroeconomic trends and a significant supply-demand imbalance driven by developments in China and the US.

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According to the report, the margin compression in these areas is a key reason the Pakistan chemical sector has underperformed the KSE-100 index by 19%.

The PVC-Ethylene Story: A Market Under Pressure

The profit margin, or “core delta,” for PVC-Ethylene has seen a notable decline, falling by 17% year-over-year (YoY) to US271 per ton by the end of 2025, down from US326 per ton a year earlier. This 17% fall in the core delta occurred because the 19% drop in the final product’s price (PVC) was more severe than the 21% drop in the raw material’s cost (Ethylene), squeezing the profitability of the conversion process.

Key Factors Driving the Decline

The downward pressure on PVC-Ethylene margins stems from several interconnected factors:

• Global Economic Slowdown: A general slowdown in the world’s economy has reduced overall demand for industrial products, including PVC.
• Bearish Oil Prices: Softer crude oil prices have led to lower prices for related chemicals. Ethylene prices, for example, fell 21% YoY, in line with lower crude prices.
• Reduced Asian Demand: Demand for PVC has weakened, specifically across Asia, a key market for the product.
• US-China Trade Issues: Ongoing trade dynamics between the US and China have further complicated the demand situation in the Asian market.

The Global Supply Glut

This demand-side weakness is colliding with a deepening supply glut, creating a perfect storm for PVC prices. Weak domestic demand in China, particularly from its struggling real estate sector, combined with aggressive new production capacity, has pushed Chinese producers to export their surplus PVC. Simultaneously, US-made PVC has become more available for export, as shipments that retreated during the pandemic have returned to the global market due to softer post-COVID domestic demand. This influx of low-priced material into price-sensitive markets like India and Vietnam has intensified competition and pushed global PVC prices even lower.

The Pressure on PTA-PX Margins

The PTA-PX value chain is facing a similar challenge. Profit margins here have declined by 19% YoY to approximately US62 per ton by December 2025, down from US74 per ton a year earlier. This drop was primarily caused by a 3% YoY reduction in PTA prices.

3.1. Subdued Demand from Key Industries

Weak demand for PTA is coming from the “downstream” industries that use it as a raw material. Key segments such as polyester, textile, and PET are experiencing sluggish sales and holding high levels of existing inventory. As a result, they are purchasing less PTA, relying on their existing stockpiles and limiting spot procurement.

3.2. Oversupply from New and Restarted Plants

The supply side of the equation offers no relief, with the market facing a significant excess of PTA. The restart of previously idle manufacturing plants, combined with new capacity additions (particularly in China), has worsened the oversupply conditions. This combination of weak demand and ample supply continues to keep PTA-PX margins under sustained strain.

The Bigger Picture: Impact on the Stock Market

The specific challenges facing PVC-Ethylene and PTA-PX margins are not isolated incidents; they have a direct impact on the broader market. According to the JS Global report, this sustained margin compression across key petrochemical products is a primary factor behind the Pakistan chemical sector’s 19% underperformance versus the KSE-100 index.

For an investor, this means that the average stock price for companies in the chemical sector has not grown as much as the average for the top 100 companies in the market. This significant lag is a clear signal that the market has priced in the sector’s ongoing profitability struggles, showing skepticism about a near-term recovery.

Key Takeaways from the JS Global Report

1. Falling Profitability: Margins for key petrochemicals are down significantly. The PVC-Ethylene margin fell 17% YoY, while the PTA-PX margin dropped 19% YoY.
2. A Two-Pronged Problem: The decline is caused by a combination of weak global demand stemming from a widespread economic slowdown and a major oversupply of products on the market.
3. Supply Glut Drivers: The oversupply is primarily fueled by a surge in exports from China (due to weak domestic demand and aggressive capacity additions) and increased export availability from the US.
4. Market Underperformance: These fundamental profitability challenges have directly contributed to the chemical sector’s stock performance lagging 19% behind the broader KSE-100 market index.

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →