NEWS DETAILS

Polyvinyl chloride (PVC) resin prices have jumped by more than 10 percent in recent weeks due to an increase in ocean freight rates and stockpiling by Indian processors ahead of lean demand season beginning in June. Highly-traded Suspension Grade PVC resin prices have risen by approximately Rs 9-10 a kg in recent weeks to trade a high of Rs 90-91 a kg in the benchmark Ahmedabad spot markets. Domestic primary polymer producers are expected to raise their products' selling prices by Rs 1-2 a kg shortly.

Domestic producers of virgin polymers have attributed the sudden rise in spot PVC prices to the increase in ocean freight rates due to the ongoing trade war between the United States and China. There has been no change in market fundamentals. Surprisingly, the sudden spurt in PVC prices has weakened demand, at least in the short term. Despite India being heavily dependent on imported materials, there has been an abundance of PVC available in the pipeline. According to Polymerupdate Research, Suspension grade PVC resin prices in Ahmedabad declined to Rs 74.40 a kg in October 2023 due to weak demand, after rising to the record level of Rs 123.88 a kg in June 2022. Since the recent low, PVC prices in the domestic market have recovered to trade at Rs 90-91 a kg today.

A senior industry official said, “No consumer is buying today at the current prevailing price of Rs 90 a kg. Only traders are trying to create a market sentiment to claim that PVC prices will skyrocket in the future. Fundamentally, nothing has changed. It is like a penny stock in the equity market which has seen a substantial increase in a short period only to stagnate at a point.”

India’s PVC demand-supply (million tonnes)
Financial year	Domestic demand	Total capacity	Operating rate (%)
2029-30 (f)	6.0	4.0	81
2028-29 (f)	5.6	3.5	83
2027-28 (f)	5.2	3.5	75
2026-27 (f)	4.9	3.0	77
2025-26 (f)	4.6	2.0	88
2024-25 (f)	4.3	1.7	90
2023-24 (f)	4.0	1.6	89
2022-23 (p)	3.7	1.6	90
2021-22 (a)	2.8	1.6	89

Source: Reports; a = Actual, p = Projection, f = Forecast

Increase in ocean freight rates
Meanwhile, ocean freight has spiked over the last few days, especially since the United States announced up to a 100 percent increase in the import duty on select articles including Electronic Vehicles (EVs) and some of its components. Chinese exporters want to complete the shipment of their booked consignments before the newly imposed import duty comes into play. Consequently, there has been a shortage of ships on the United States-China route.

The ship availability on this route is likely to remain constrained for the next three to four months until the on-route ships come back after delivering the goods on board. Consequently, freight rates have increased by US$20-30 a tonne, transporting thereby over US$300 a container increase for a 16-tonne container. By contrast, ocean freight rates have proportionately declined due to a substantial number of ships being availabile on the route to Europe.

FOB price for PVC continued to trade between US$720-730 a tonne in China. Freight rates on some routes have risen by US$40 – 100 a tonne, so PVC prices have become US$820 a tonne. It is a long-term ploy to keep PVC prices elevated for the domestic industry to raise the price. They will raise PVC prices up to the cost, and not to the extent of market prices, to cut their losses and create a situation for trades to continue their purchases.

Short-term price to increase
Indian producers may raise their product prices by Rs 1-2 a kg in the short term due to an overall increase in the cost of imports. However, they cannot jack up polymer prices abnormally. Domestic producers cannot raise PVC prices, as claimed in a report, in two phases of Rs 6 each. “We realign our product prices based on the landed cost. If the cost of import goes up for whatever the factor, then we revise the prices accordingly. Since the landed cost in India has increased by Rs 1-2 a kg due to the increase in ocean freight rates, a similar rise in PVC prices cannot be ruled out as producers will take benefit,” said a senior industry official.

PVC prices were quoted Rs 4 a kg lower a few days ago, with the commodity prevailing at Rs 86-87 a kg in April this year. Suddenly, its prices have jacked up to Rs 90 a kg due to traders’ rumours. Select traders have created a sense of unavailability of polymer in the market to raise the prices artificially without having any fundamental support.

Long-term demand to remain subdued
India is heading towards a monsoon season in the next two weeks with the Indian Meteorological Department (IMD) forecasting the rainfalls to hit the first Kerala coast in the first week of June, followed by their gradual spread throughout the country. Most importantly, experts have forecasted the occurrence of La Nina, an event of overall excessive rainfalls and their uneven distribution. During monsoon season, the demand for PVC pipes and other derivatives normally declines with the slowdown in the construction and infrastructure industries.

In short, PVC producers are bound to see the lean demand season during the next four months. Indicating the demand weakness, Supreme Industries and Finolex Industries, India’s two primary PVC producers could have raised their basic selling prices, which they did not do. These producers prevented the price increase mainly because of lean demand season ahead. “This simply means that traders are trying to increase PVC prices only to give a sentimental boost to the industry, which may not last long,” said another leading industry official.

Chinese sellers backing out
It is worth mentioning here that some Chinese exporters have started backing out from executing the shipments due to an escalation in ocean freight rates. However, back out of some Chinese traders are unlikely to create any shortage of materials in the market, as domestic processors have already created its adequate stockpiles for operating factories.

Additionally, there is enough materials in the pipeline which remained enough to prevent the market from any supply shortage. Even without China, there is enough quantity awaiting delivery at the Indian ports. “In my view, the exorbitant price rise rumours are just unrealistic, and we should not give much credence to it. These rumours could put pressure on some Indian primary producers and encourage them to raise prices. It is just a gambit as nothing has changed fundamentally. The fact of the matter is if PVC price goes up, vinyl chloride monomer (VCM) prices will also rise. Since VCM prices remained range bound, there is no question of PVC prices moving northwards,” said the official.

Stellar growth in PVC pipe demand
Indian PVC pipe makers are likely to record stellar growth in their sales volume this financial year (FY2024-25) due to robust performance in the construction and infrastructure sectors. Government schemes such as ‘Nal se Jal’, and ‘Housing for All’, among others, have exceeded their initial targets, contributing to strong performance so far this year. The government’s strong focus on infrastructure development is expected to have a multiplier effect across all input sectors, including PVC pipe manufacturing.

According to a Crisil study released recently, PVC pipe makers are poised to make history with double-digit growth in their sales volume for the third consecutive year, driven by strong demand from the housing and infrastructure sectors. The rating agency forecasts India’s pipe manufacturing industry to witness 10-12 percent growth in their sales volume in the financial year 2024-25, following expansions of 14 percent and 24 percent recorded in the financial years 2023-24, and 2022-23, respectively.

Strong user industry demand
Strong demand from end-user industries has been the key growth driver, triggering larger capital expenditure (capex) by PVC pipe makers this fiscal and the next year. Key sectors such as irrigation, water supply, sanitation, and housing account for over 80 percent of India’s total PVC pipe demand. As capex is likely to be funded through internal accrual, credit profiles of PVC pipe makers should remain stable. A Crisil Ratings analysis of 22 PVC pipe makers, accounting for 40-45 percent of the segment’s volumes, indicates as much.

Anand Kulkarni, Director of Crisil Ratings, stated, “Demand for PVC pipes will remain strong as key end-user industries such as irrigation, water supply, and sanitation will benefit from continued budgetary allocations towards schemes such as ‘Jal Jeevan Mission’ and ‘Pradhan Mantri Krishi Sinchai Yojana’. The government’s focus on achieving direct water connections to all households will continue considering approximately 76 percent of households have direct water connections. Alongside, increasing irrigation coverage is expected to continue over the medium term with irrigation access being at approximately 54 percent of the net sown area.”


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com