Published on 12/04/2019 3:09:15 PM | Source: ICICI Securities Ltd

Plastic Sector - PVC price decline continues into the new fiscal By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Plastic #Sector Report #ICICI Securities

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PVC price decline continues into the new fiscal

PVC prices enter the new fiscal with another decline of Rs1.5/kg or 2% on 1st April. This, along with the cut of Rs6/kg in March, amounts to over 9.3% fall in PVC prices in the past 20 days. PVC prices are now trading at almost 5-quarter lows. While the price cuts witnessed in March are likely to supress Q4FY19 volumes and margins of PVC pipe manufacturers, the latest price cut would continue to impact the players in Q1FY20 unless prices stage a smart reversal.

* PVC prices decline further by 2%.

PVC prices, after declining by 7.4% over the last three weeks (Near-term pain for PVC pipe players), they have declined by another 2% (cumulatively: 9.3% in past one month) on 1st April. These three price cuts (in last 20 days) have come unexpectedly after the three hikes witnessed between Dec’18-Feb’19. The sustained fall in PVC prices is largely because of huge inventory build-up in the US. With the latest price cut, we expect volumes and margins of PVC pipe manufacturers to be impacted in the beginning of Q1FY20 as well.

* Demand for CPVC pipes may get impacted if the PVC price fall persists.

While PVC prices have been in a decline mode over the past couple of months, CPVC prices on the other hand have remained firm. The differential between PVC and CPVC prices have thus widened over the past couple of months. We believe, if the fall in PVC prices persist, it may also affect the demand for CPVC pipes particularly in cases where these pipes are being cannibalised with PVC pipes.

* Near-term impact on major PVC pipe manufacturers.

Performance of PVC players like SI and FI in the near term is likely to get impacted with their higher exposure to PVC pipes. FI’s profitability could get adversely impacted due to its backward integration in PVC resin. However, ASTRA is likely to be least impacted due to its lower share of PVC revenues, expected improvement in CPVC pipe margins (led by lower costs of imported CPVC resin) and expected forex gains on the back of sharp INR appreciation in Q4FY19.


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