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PVC prices continue to hit record highs

PVC price uptrend continues unabated with another record hike of Rs6/kg, or 6%, w.e.f. 18th Nov’20. This is the fourth price hike in PVC in Q3FY21 (+17.6%) after an increase of Rs14.5/kg, or 18.9%, in Q2FY21. The rally, which started with sharp spurts in May’20 and Jun’20, has now extended into Q3FY21 as well. PVC prices, which are now at Rs107.3/kg, have risen 63.7% since 1st May’20. The surge has been led largely by continued supply-side issues globally. The sustained higher prices in PVC resin may provide a fillip to PVC pipe manufacturers by way of higher channel filling and inventory gains in the near term. We now prefer Astral Poly Technik (ASTRA) over Prince Pipes and Fittings (PPF) and Supreme Industries (SI).

* Global supply shortage pushes PVC prices to new highs with a record hike of Rs6/kg. With uptick in trade activities across the globe and recovery in crude prices, PVC prices recovered fully in Q1FY21 itself. Thereafter, PVC prices started trending higher again with hike of Rs14.5/kg, or 18.9%, in Q2FY21. The latest hike of Rs6/kg is the fourth price hike in Q3FY21 and adds up to an overall 17.6% hike in the current quarter. These price hikes attributable mainly to persistent supply-side issues globally. While pipe distributors continue to have leaner channel inventory post Covid outbreak, these sustained price hikes might tempt PVC pipe distributors to resort to higher channel filling to benefit them from the increasing trend in prices. The same can be seen from the strong double-digit volume growth reported by pipe players in Oct’20 as per our channel checks.

* CPVC pipe prices remain firm. Top CPVC pipe players took 3-5% price hikes in the first week of Mar’20. There was a further hike announcement of 4-5% by a few large CPVC pipe players in the first week of Jun’20, which was never implemented in the trade. We are however witnessing a fresh round of price increases in CPVC pipes with Prince Pipes and Fittings initiating a hike of 3% on 1st Oct’20.

* PVC pipe players can outperform CPVC pipe manufacturing companies in 9MFY21. We expect PVC pipe players to outperform their CPVC counterparts in 9MFY21 due to sharp spurt in PVC prices over the past six months and higher agriculture pipe sales in Q1FY21. The spike in PVC prices and the likely improvement in volumes since the second half of Q1FY21 would aid PVC pipe players to report a much better performance in 9MFY21 than envisaged earlier.

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