Published on 15/04/2021 10:48:19 AM | Source: ICICI Securities Ltd

Plastic Sector Update - PVC prices continue to rise By ICICI Securities

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PVC prices continue to rise

PVC prices have increased further with a hike of Rs3/kg, or 2.2%, w.e.f. 15th Apr’21. This is the first hike in Q1FY22 after an increase of Rs19/kg, or 16.2%, in Q4FY21. The longest rally in PVC prices thus continues to extend even in Q1FY22. Now at Rs139.3/kg, prices have more than doubled since 1st May’20. The surge has been largely led by sustained supply-side issues globally amid sustained intermittent lockdowns post first phase of Covid. High PVC prices would provide a major fillip to organised PVC pipe manufacturers with consolidation gathering pace as regional/unorganised players continue to face issues, but it would also become increasingly difficult to pass on the same (especially in the agri pipe segment). We prefer Astral Ltd (ASTRA) over Prince Pipes and Fittings (PPF) and Supreme Industries (SI).


* Global supply-side issues (amid intermittent lockdowns) and firm crude prices drive PVC prices to yet another new high. With an uptick in trade activities across the globe and bounce-back in crude prices, PVC prices recovered fully in Q1FY21 itself. Thereafter, prices started trending higher with hikes of 18.9%/28.5%/16.2% in Q2FY21/Q3FY21/Q4FY21 respectively. The latest hike of Rs3/kg, or 2.2%, is the first in Q1FY22. These price hikes are largely attributable to the persistent supplyside issues globally amid sustained intermittent lockdowns globally.


* Consolidation in PVC pipe segment to pick pace. We believe, with tight supplies and higher prices of PVC resin, regional and unorganised players are likely to face huge sourcing and working capital challenges in the near term. This may boost volume growth of top organised players in the near to medium term by virtue of strong market share gains. However, with these unprecedented price hikes, it may also become difficult for branded players to pass-on the price increases particularly in the agricultural pipe segment.


* CPVC pipe players likely to report healthy volume growth in Q4FY21. We expect the players to outperform their PVC counterparts in terms of volume growth in Q4FY21 due to sharp spurt in PVC prices, thereby driving further competitiveness for CPVC pipe players (due to narrowing of price differential between the two). Also, with CPVC pipe prices expected to trend higher in the near term, we expect players in the segment to witness strong volume traction and improved margins.


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