KARACHI: It’s possible that a slowdown in economic activity will have an influence on the consumption of industrial gases and lower demand for them in large-scale production (LSM).
Due to industrial gas consumption in numerous businesses, Pakistan Credit Rating Agency (PACRA) found that the sector’s margins were constant in the first half of the year. However, “the slowdown in the economy and reduced demand in the LSM” may affect profits. . Floods harmed 33 million individuals and disrupted economic operations, lowering FY23 growth to 2%. In FY22, the LSM sector gained 10.5%, increasing industrial gas consumption and income. Floods have altered everything, and LSM has shrunk by 0.4 percent YoY in the first two months of FY23. This may affect the LSM industry’s industrial gas consumption.
According to the findings of the research, the production capacity of the key companies was being increased by building up new plants. As a consequence, the sector’s borrowing has increased by 47 percent in the first half of CY22. This would result in an additional rise in the sector’s cost of borrowing money. The industry is only modestly leveraged, with a debt-to-equity ratio of around 50 percent, which is sustainable because of the robust sponsor backing the industry receives.
At the moment, every single part of the economy is suffering from a downturn, and the production of industrial gases would be no exception to this rule. According to the findings of the study, however, it is anticipated that the industry would have a resurgence in the medium term owing to its need in a number of key industries such as steel, cement, food, and research.
Since the LSM output has increased by 3.9 percent MoM from July to August FY23, this indicates that the economy has started moving towards recovery after the floods; however, the recovery is occurring at a very slow rate, and it will take some time for the level of business activity to return to what it was before the floods.
Even in the event that the economy experiences a downturn, the need for oxygen in the medical industry will not change. If the current economic crisis can be brought under control, it is anticipated that the industry as a whole will enjoy increased profitability over the course of time. Because of the expansion of the industries that make use of industrial gases, it is anticipated that the demand for industrial gases would stay relatively unchanged.
As a result of the fast expansion of industries such as research and technology, there is an increased need for gases such as argon and other rare gases (neon, krypton, and xenon). In order to maintain the quality of food that has been packed, it is common practice to employ inert gases, such as nitrogen and carbon dioxide, to remove oxygen and moisture. According to the findings of the research, there will be an increase in the need for nitrogen and carbon dioxide as people consume more food that is pre-packaged and canned.
