PVC prices' uptrend continues with another sharp hike of Rs3/kg, or 3.4%, w.e.f. 17th Sep'20. This is the seventh price hike in Q2-TD totalling to Rs14.5/kg or 18.9% even after a sharp spurt witnessed in May'20 and Jun'20. PVC prices, which now stand at Rs91.3/kg, have risen 39.2% since 1st May'20. The surge has been largely led by higher international PVC prices amid supply-side issues. The sustained price hike in PVC resin is likely to provide a fillip to PVC pipe manufacturers by way of higher channel filling and inventory gains. We prefer Prince Pipes and Fittings (PPF) over Astral Poly Technik (ASTRA) and Supreme Industries (SI).
- Supply shortage globally aids further spurt in PVC prices. With the uptick in trade activities across the globe and recovery in crude prices, PVC prices recovered fully in Q1FY21 itself. Post that PVC prices again started trending higher with seven price hikes in Q2-TD totaling to Rs14.5/kg or 18.9% (Rs1.5/kg on 16th Jul'20, Rs2/kg on 1st Aug'20, Rs2/kg on 13th Aug'20, Rs2/kg on 19th Aug'20 and Rs2/kg on 1st Sep'20, Rs2/kg on 3rd Sep'20 and now Rs3/kg on 17th Sep'20). These price hikes are mainly attributed to supply-side issues and the plant shutdown by Formosa in the US, which led to higher international PVC prices. While pipe distributors continue to have leaner channel inventory post Covid-19 outbreak, these price hikes might tempt PVC pipe distributors to resort to higher channel filling to benefit from the increasing trend in PVC pipe prices.
CPVC pipe prices remain firm. Top CPVC pipe players took 3-5% price hike in the first week of Mar'20. There was a further hike announcement of 4-5% by a few large CPVC pipe players in the first week of Jun'20. However, our channel checks suggest that the same has not yet been implemented in the trade and since then there is no major price movement in CPVC pipe segment.
PVC pipe players likely to outperform CPVC pipe manufacturing companies in H1FY21. We expect PVC pipe players to outperform their CPVC counterparts in H1FY21 due to sharp spurt in PVC prices over the last three months and higher agriculture pipes sales in Q1FY21. The sharp recovery in PVC prices and the likely improvement in volumes since the second half of Q1FY21 would aid PVC pipe players report a much better performance in H1FY21 than envisaged earlier.