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PVC prices correct further
After witnessing a sharp reversal/fall in PVC prices in Oct’19, which witnessed a price cut of Rs3/kg (or 3.7%), PVC prices have corrected further by Rs2/kg (or 2.6%) on 8 th Nov’19. The decline is largely due to the recent softness in crude prices in particular. Thus, after seeing a rally of Rs5.5/7.3% in PVC prices in Aug and Sep’19, PVC has erased most of its gains (Rs5/6.2%) in the last one month. The recent correction in PVC prices may adversely impact the recent growth momentum of PVC pipe players witnessed in the last couple of quarters. Maintain HOLD on both ASTRA and SI.
* Another price cut in a month’s time. With the recent price decline of Rs2/kg (or 2.6%), PVC prices have now fallen by 6.2% in less than a month’s time. Prices now stand at Rs75.6/kg.
The extended monsoon, prevailing general economic slowdown and back-to-back fall in PVC prices in less than a month’s time (inducing inventory destocking at the dealer’s end) is likely to adversely impact volumes of PVC pipe manufacturers in Q3FY20. The PVC pipe margins are also likely to come under pressure in Q3FY20 on account of inventory losses as opposed to higher margins witnessed in H1FY20 due to inventory gains during that period.
* CPVC prices, however, continue to tread firm. With the provisional ADD notified w.r.t. imports of CPVC resin/compound from China and Korea for a period of six months, CPVC prices surged 5-7% w.e.f. 1st Oct’19. Given that the provisional ADD is likely to significantly impact CPVC resin/compound imports from China/Korea (33% of the CPVC pipe market in India) in the near term, CPVC pipe prices are likely to remain firm over the next couple of quarters.
* Despite the sudden PVC price fall, large PVC/CPVC pipe companies are likely to deliver double-digit volume growth in FY20. While PVC pipe players may get impacted due to the near-term decline in prices, large PVC/CPVC pipe players are still likely to deliver double digit volume growth in FY20 with a) demand for plumbing pipes remaining firm aided by improving traction in affordable projects and increasing replacement to traditionally used piping systems, b) competitive intensity weakening within the organised/unorganised space, and c) significant market share gains in CPVC pipes in particular. We, thus, expect players like Astral Poly Technik, Supreme Industries and Ashirvad by Aliaxis to consolidate their respective market shares in plumbing PVC/CPVC pipes over the next few quarters.
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