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Published on 30/07/2020 10:55:52 AM | Source: ICICI Securities Ltd

Polymer Sector Update Uptrend in other polymer (ex-PVC) pricescontinue By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Plastic #Sector Report #ICICI Securities

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Uptrend in other polymer (ex-PVC) pricescontinue

After  swift  recovery  in  PVCprices,  other  polymer  (ex-PVC)  prices too have recouped  most  of  the fallwitnessed inApr’20 with  an  uptick of  1.2-3.1%  across polymers last week. This was largelydrivenby trade resumption and crude pricerecovery.Overall  price  increases  are  in  the  range  of  1.3%-8.6%  over  the past month. It may be noted that prices of other polymers (ex-PVC) had fallen by 4.8%-7% since the start of FY21. We believe the recent price hikes mayhelp aid volume recovery in segments to which these polymers cater,and reduce inventory losses incurred  in  Apr’20.  Plastic   processing   companies   (e.g.   Supreme   Industries) dealing with these polymers arelikely to benefit fromthe same.

* Other  polymer  prices increase by 1.2%-3.1%led  by  trade  resumption  and crude  price  recovery. Afterwitnessing a price fall in  the  range  of 4.8%-7% sincethe  start  of  FY21,prices  of other  polymers (ex-PVC) have  witnessed a  decent recovery (by 1.3%-8.6%)over  the past month. The  rise  is largely  attributed  tothe gradual resumption in trade globally and recovery in crude prices.

* HDPE recovery slowest while PP prices haverecovered fully. Polymer (ex-PVC) prices have seen adecentrecoveryover the last one monthfollowing highercrude pricesand  resumptionof  trade. The price  increase  has  helped  PP prices (1stApril: Rs78.9/kg, current: Rs82.4/kg)andLLDPE(1stApril: Rs83.6/kg, current: Rs84.6/kg)recover  fully. LDPEprices (1stApril: Rs78.4/kg,  current: Rs76.9/kg) and  HDPE  (1stApril:  Rs82.3/kg,  current:  Rs80.3/kg)on  the  other  hand  have  also  recovered  large part of their losses. HDPE pricerecovery has been the slowest(it may be noted thatits price  fall  was  the leastat 4% inAprilwhereasmost  other  polymerprices  fellin doubledigits). HDPE is mainly used to manufacture crates and palletswhileLDPE is used  largely  for  making  foam-based  products.  PP  on  the  other  hand  is  the  main material  for  manufacturing  injection-moulded  products  such  as  furniture  and  plastic parts   for   automobiles   and   consumer   durables. We   thus   expect   companies processing these polymers to seea recovery in realisation fromfinished products in the near term.  

* Realisation in these finished products is likely to improvefrom June.The fall in polymer  prices in Apriland the  subsequentrecovery is  likely  to help improve realisations for plastic  processors  dealingin the  aforementioned  product  segments startingJune. While  prices  in  Q1FY21-TD have  recovered in  case  of  polymers  like PPand  LLDPE,itremains  lower  by 1.9%  and 2.4%  in  case  of  LDPEand HDPE respectively.

* Supreme  Industries  (SI)is likely  to  witness  improved  realisations. SI –one  of the largest plastic processors in India –is likely to witness a modicum of recovery in realisation in segments  like  packaging  product,  industrial  productand  consumer product,if prices ofother polymers continue to trend upward.Besides improvement in  realisations, the company  has  already  seen  healthy  demand  in  its packaging product    segment    (SILPAULINand    performance    film    in    particular).While consumer/packaging product volumesmayhave seen an uptickdue to higher pricesof  other  polymers,  theCovid-19  impact  on  demand for these  productsis  likely  to persist at least through the near term.

 

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