Triple strike in PVC prices in just 10 days
PVC price increases further by Rs2/kg (or 2.9%) w.e.f. 28 th May’20. This marks the third consecutive price hike totalling to Rs6/kg or 9.2% in just last 10 days of May’20 (earlier, price increases of Rs2/kg were announced each on 18th May and 21st May). The recent hikes in PVC prices are largely led by higher international PVC prices. PVC price now stands at Rs71.6/kg. This, we believe, would bring a big relief to PVC pipe manufacturers, who have been grappling with the extended nationwide lockdown and sharply falling PVC prices in Apr’20. This price hike would lead to some spike in PVC pipe volumes and reversal of large quantum of inventory losses incurred in April month in particular. We continue to prefer Astral Poly Technik (ASTRA) over Supreme Industries (SI).
* Another PVC price hike in just a week. 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 the recent uptick in trade activities across the globe and some recovery in crude prices, PVC prices have increased by Rs6/kg, or 9.2% in the last 10 days. Prices now remain lower by Rs5/kg, or 6.5%, 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 also trend higher. Top CPVC pipe players took a 3-5% price hike in the first week of Mar’20. There has been a further price hike of 4-5% announced by a few large players in the last couple of days. This, along with the recent imposition of ADD on CPVC resin/compound sourced from China/Korea, would improve demand for top CPVC pipe players sourcing resin/compound from Japan/US in particular.
* PVC pipe players likely to outperform CPVC pipe manufacturing companies in current quarter. We expect PVC pipe players to outperform their CPVC counterparts in Q1FY21, largely due to higher demand for agricultural PVC pipes and recent spike in PVC prices. Despite the recent recovery in PVC prices, PVC pipe players are likely to see relatively subdued volumes in Q1FY21 and muted EBIDTA margins due to operating deleverage and some quantum of inventory losses.
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