PVC price fall has reversed with an increase of Rs2/kg (or 3.1%) w.e.f. 18th May’20, after falling sharply by Rs11/kg, or 14.4%, since 1st Apr’20. The hike in PVC prices was led largely by higher international PVC prices. This was the first hike after four successive cuts seen in the last one and a half month. PVC prices now stand corrected at Rs67.6/kg. This we believe is a crucial and timely development for the PVC pipe processing companies, which have been grappling with the extended nationwide lockdown and sharply falling PVC prices (leading to heavy inventory losses) in the current quarter. This is likely to spur demand for PVC pipes (through channel restocking) as the dealers may now anticipate prices to move northwards. We continue to prefer ASTRA over Supreme Industries.
* PVC price fall gets arrested as global PVC prices firm up. Covid-19 outbreak and its impact on global demand in the near term had led to a sharp fall in PVC prices in India. However, with recent uptick in trade activities across the globe and some recovery in crude prices, PVC prices have increased by Rs2/kg, or 3.1%. Prices however remain lower by Rs9/kg, or 11.8%, since 1 st Apr’20. Despite likely demand woes in the near term amid Covid-19 concerns, the recent increase in PVC prices is likely to drive channel restocking with the trade sitting on lean channel inventory at the moment.
* CPVC pipe prices remain firm. Top CPVC pipe players took a 3-5% price hike in the first week of Mar’20 and prices have since remained firm. The recent widening of differential between PVC and CPVC prices would also ease to some extent with the current uptick in PVC prices. This, along with the recent imposition of ADD on CPVC resin/compound sourced from China/Korea, would drive improved demand for top CPVC pipe players sourcing resin/compound from Japan/US in particular.
* CPVC pipes players likely to outperform PVC pipe manufacturing companies. We expect earnings of CPVC pipe players (like ASTRA) to outperform their PVC counterparts in the near term, largely due to firm CPVC prices. PVC pipe players on the other hand are likely to see relatively muted volumes in Q1FY21 due to recent sharp fall in PVC prices, which in turn would lead to huge inventory losses for players like Supreme Industries, Prince Pipes and Fittings, and Finolex Industries.
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