PVC price increased further steeply with a hike of Rs6/kg, or 4.9%, w.e.f. 1st Mar'21. This is the third PVC price hike in Q4FY21 (totalling to +Rs12/kg or 10.2%) after an increase of Rs26/kg, or 28.5%, in Q3FY21. The longest rally in PVC prices continues to extend even into Q4FY21. PVC prices, which are now at Rs129.3/kg, have almost doubled since 1st May'20. The surge has been largely led by sustained supply-side issues globally with US cold wave leading to the recent shutdown of plants. The record high prices in PVC resin may provide a major fillip to organised PVC pipe manufacturers with consolidation expected to gather pace as regional and unorganised players continue to face issues w.r.t. polymer sourcing and higher working capital requirements. We prefer Prince Pipes and Fittings (PPF) over Astral Poly Technik (ASTRA) and Supreme Industries (SI).
- Global supply shortage and strong winter in US pushes PVC prices to new highs with another hike of Rs6/kg. With an uptick in trade activities across the globe and recovery in crude prices, PVC prices recovered fully in Q1FY21 itself. Thereafter, PVC prices started trending higher with hike of Rs14.5/kg, or 18.9%, in Q2FY21 and 28.5% in Q3FY21. The latest hike of Rs6/kg is the third price hike in Q4FY21 and results in an overall 10% hike for the quarter. These price hikes are largely attributable to persistent supply-side issues globally which is further aggravated by the strong winter in the US.
- Consolidation in PVC pipes segment to pick-up pace. We believe with tight supply and higher prices of PVC resin, the regional and unorganised players are likely to face huge sourcing and working capital challenges in the near term. This may boost volume growth of top organised players in near-to-medium term by virtue of strong market share gains. However, with these unprecedented price hikes, it may become difficult for branded players to pass on price increases particularly in the agricultural pipe segment.
- CPVC pipe players likely to report healthy volume growth in Q4FY21. We expect CPVC pipe players to outperform their PVC counterparts in terms of volume growth in Q4FY21 due to sharp spurt in PVC prices thereby driving further competitiveness for CPVC pipe players (due to narrowing of price differential between the two).