CGPC to Prioritize Profit in Q2; Production and Sales Volume Expected to Be Slightly Lower Than Q1

Hu Chi-hung, General Manager of PVC manufacturer China General Plastics Corporation (CGPC), stated that due to the impact of the US-Iran conflict, the PVC market has seen extreme fluctuations in recent months. After comprehensively considering factors such as raw material procurement and costs, CGPC will adopt a domestic-sales-first, profit-first approach in the second quarter. It is estimated that Q2 production and sales volume will be slightly lower than in Q1, but through adjustments in the shipment mix, unit gross margin is expected to improve. CGPC held an investor conference today. Hu analyzed that after the outbreak of the US-Iran conflict at the end of February, prices for upstream raw materials such as ethylene, ethylene dichloride (EDC), and vinyl chloride monomer (VCM), as well as PVC products, surged simultaneously in March. In April, as the conflict eased, prices saw a pullback, with the decline in raw material ethylene being relatively milder compared to the price drop in PVC products. Hu stated that CGPC is very diligently planning its production and sales for Q2 due to significant volatility, which requires a comprehensive assessment of factors like raw material availability and costs. The strategy for Q2 will prioritize domestic sales and profit, with plans to reduce overall inventory to minimize risk. Overall, CGPC projects a slight decline in production and sales volume in Q2 compared to Q1, but the unit gross margin will be in a more favorable position through adjustments to the product mix. Wu Chien-hsing, head of the sales department and company spokesman, further analyzed the raw material side for Q2. He noted that while the supply of the key upstream petrochemical raw material, ethylene, continues to be affected by the US-Iran conflict, Asian countries have diversified their crude oil sources. This has eased the supply of naphtha for crackers, leading to a gradual increase in operating rates and a steady recovery in overall ethylene production capacity. Regarding the downstream market, Wu stated that crude oil and naphtha prices remain volatile and strong. Downstream ethylene derivative manufacturers are facing rising costs and poor end-user demand, leading many to adopt risk-aversion strategies by cutting production. It is expected that the ethylene market may gradually decline in line with weak downstream fundamentals, which would be beneficial for CGPC's costs. CGPC's Q1 revenue was NT$2.674 billion, an 8.6% year-over-year increase. Its gross margin turned positive at 2%, compared to -4.3% in the same period last year. The net loss attributable to the parent company was NT$120 million, a 55% reduction from the NT$268 million net loss in the same period last year, resulting in a quarterly net loss per share of NT$0.21.