The consumption market for polyvinyl chloride (PVC) in Asia has undergone significant changes in recent months, primarily due to a greater emphasis on domestic market growth over exports. The shrinking population in China, coupled with a maturing market in Northeast Asia, is leading to a shift in PVC consumption patterns toward neighbouring countries like India and Vietnam.
India has already surpassed China in terms of population this year, with estimates suggesting further growth. In contrast, economists have forecast a 10-million decrease in the Chinese population over the next 10 years due to the ‘one child’ policy continued for decade but withdrawn last year. While Northeast Asia has experienced positive growth until 2022, it is projected to begin contracting in 2023 and further decline over the next decade. On the other hand, both Southeast Asia and the Indian Subcontinent are expected to see population growth until 2032. This increasing population will drive additional infrastructure and housing requirements in both Southeast Asia and the Indian Subcontinent, supporting the demand for PVC. Ultimately, the Indian Subcontinent holds the highest potential for growth growth.
New Page 1 | Mainland China PVC demand versus GDP growth |
| Particulars | Historical | Estimate |
| 2000-2009 | 2010-2019 | 2020-2032 |
| PVC demand, annual average (%) | 11.5 | 6.6 | 2.6 |
| GDP growth, annual average (%) | 10.3 | 7.7 | 4.4 |
| Elasticity (PVC demand/GDP) | 1.1 | 0.9 | 0.6 |
Source: Industry
Apparent consumption down in China
According to industry sources, China’s apparent PVC consumption declined by 2.6 percent to 19.3 million tonnes in the calendar year 2022, down from the 19.8 million tonnes reported in the previous year. China’s PVC production was reported at 21 million tonnes in 2022. Due to the slowdown in global demand, Chinese producers lowered their operating rate by 4 percentage points year-on-year to 74 percent in 2022, compared to 78 percent reported in the previous year.
Notably, overall PVC exports from China tripled over the last three years. Starting from the level of around 800,000 tonnes in the calendar 2020, China’s PVC exports jumped to around 2.4 million tonnes in 2022. According to reports, weakening domestic demand due to the coronavirus (Covid-19)-induced lockdowns, coupled with several other restrictions imposed by the local governments, impacted exports of finished goods where PVC was used as a raw material. Deep-seated issues in real estate and impacting the progress of under-construction and new infrastructure projects also hit the domestic demand for PVC in China.
China’s PVC exports see increased diversification with shipments happening largely to the destinations countries that witness some difference from the producers in Japan, South Korea, and Taiwan. China and other Northeast Asian producers are likely to compete with suppliers in India, Vietnam, and Bangladesh. Interestingly, China in geographic advantage to prioritize central Asia (such as Uzbekistan), and Russia amid ongoing major projects like the Shanghai Cooperation Organization (SCO) and the Belt and Road Initiative (BRI).
China’s Covid-related lockdowns suppress domestic consumption, exports increase for much of 2022. Also, PVC prices rise in late 2022, supported by brisk restocking from India, and relaxed restrictions in China. Presently, global PVC prices are depressed amid healthy supply and underperforming consumption in China. In the calendar year 2023, PVC production and consumption remained under pressure in China as slower-than-expected economic growth impacted the government’s real estate and infrastructure allocations. During the first half of 2023, China’s PVC demand continued to remain weak with sluggish recovery from periodic shutdowns despite minor steps to ease the country’s zero-tolerance on Covid policies.
Maturing PVC market in mainland China
According to industry experts, PVC demand has entered its mature phase in China. The average next 10 years’ growth elasticities with respect to GDP will fall below 1 percent, precisely to 0.6 percent. Changing socioeconomic and demographic changes over the next decade are expected to contribute to the deceleration in growth rate. Also, excess supply may persist over the next two to three years, which is expected to slow down supply-side expansion. With export demand coming in, the overall plant capacity utilization rate is likely to reach above 80 percent by 2025.
Experts believe that China has already reached its peak in terms of PVC demand, and the focus is now shifting to Asian countries such as India, Vietnam, and Indonesia. Mainland China will be one of the major sources of PVC exports in balancing global trade. Chinese production economics do not support expansion to cater to export business alone. Meanwhile, the World Bank has cut its economic growth estimates for developing countries in East Asia and the Pacific as the region remains under stress due to tighter finances and a weak global environment.
According to the World Bank’s East Asia and Pacific October 2023 Economic Update released on Tuesday, the region’s gross domestic product (GDP) growth may record at 5 percent in 2023 and 4.5 percent in 2024 as compared to its previous forecast of 5.1 percent for the current year and 4.8 percent for the next year. The regional growth this year is higher than the average growth projected for all other emerging markets and developing economies but lower than previously anticipated.
China, the world’s second-largest economy, is expected to achieve economic growth of 5.1 percent in calendar 2023. However, the growth of the region excluding China may be at 4.6 percent, the World Bank report said. China’s economic growth for 2024 has been cut to 4.4 percent now from the previously forecasted level of 4.8 percent. “In 2024, improving external conditions will help growth in the rest of the region but persistent domestic difficulties in China – the fading of the bounce back from the re-opening of the economy, elevated debt, and weakness in the property sector, structural factors such as aging – will weigh on growth in China, slowing it to 4.4 percent in 2024,” the report said.
India remains a bright spot
In spite of slowing global growth, India remained a bright spot in terms of economic growth, new investment in infrastructure projects and eventually support for PVC consumption. The Reserve Bank of India (RBI) governor Shaktikanta Das, forecasted India’s economic growth at 6.5 percent for the current financial year 2023-24 and around 5.5 percent the next year. India’s population has surpassed that of China to claim the most populous country in the world.
Therefore, the increasing population points to the need for a series of new infrastructure and housing projects. In the last few years, the government of India has launched schemes like ‘Har Ghar Nal se Jal Yojana’, and AMRUT 2.0, in addition to a host of other infrastructure development projects. The nature of India’s economy ensures pipe demand growth for the next decade, with the main drives being the agriculture and infrastructure sectors.
The Indian plastic pipe market, including polyethylene, polypropylene, PVC, etc., is forecasted to grow at 11 percent by the financial year 2024-25 due to phenomenal growth being recorded in the economy. Pipes are likely to remain the largest end segment in India, accounting for 75 percent of all PVC demand. Chlorinated PVC continues to be of interest in India.
India’s PVC demand is projected to continue its acceleration in the future, with volumes expected to reach 4 million tonnes in the financial year 2023-24 and further increase to 6 million tonnes by the end of the current decade. The consistently rising demand is poised to encourage investors to establish greenfield projects and expand existing capacity through the brownfield route. Analysts also foresee the possibility of mergers and acquisitions in this sector in the coming years.
Overall, India’s PVC production capacity is anticipated to remain stagnant at 1.6 million tonnes until 2024-25, but it is expected to ramp up thereafter, reaching 4 million tonnes by 2029-30. Consequently, India is expected to persistently face a supply deficit until the end of the current decade, comprising at least 33 percent of its demand compared to the current figure of almost 58 percent. To address this deficit, India will continue to depend on imports for the next seven to eight years. However, considering India’s increasing emphasis on infrastructure development and its aspiration to become a developed economy by 2029-30, the demand for PVC demand is likely to sustain its growth trajectory in the future.
Conclusion
PVC global supply has increased since 2022, but this uptick was capped amid a slow macroeconomic recovery. China is likely to explore export markets if the current trend of subdued domestic demand persists for an extended period. Meanwhile, India’s PVC demand may continue to grow due to rising new fund allocations for infrastructure projects, but imports may readjust in response to the potential increase in domestic production capabilities.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
