PVC pipe manufacturers’ margins dropped to a 2-year low level of US$423

News Report

PVC-Ethylene margins have dropped to US$423 per ton, at a two-year low level, which was last seen on July 10, 2020.

PVC price declined to US$930/ton on July 21, 2022, due to weaker demand from end users and surplus material supplies across Asia.

Since June 1, 2022, PVC prices for the Southeast Asia region have declined by US$350/ton.
A steep drop in upstream ethylene, EDC, and VCM values and a sharp fall in import offers from overseas suppliers pushed prices lower in Asia.

The industry assessed PVC prices in Pakistan at the USD 950–1030/mt CFR levels, a slump of US$222–250/ton from last week. However, producers from Indonesia and China have offered PVC resin suspension grade at the US$950/1,030/ton CFR levels for shipment to Pakistan in August 2022.

However, PVC retail prices in the domestic market are currently at US $1,646/ton. Since June 1, 2022, the ethylene price has decreased by US$150/ton to US$1,005/ton.

The PVC-Ethylene margin is at US$423/ton, a two-year low, said Foundation Securities in a research report.

PVC pricing sentiment remains down due to subdued demand amid volatile energy markets, growing inflationary pressures, and a seasonal slowdown in major markets.

In addition, the weakening of major global currencies against the US$ would also weigh negatively on PVC pricing in Asia.

Earlier, PVC pipe manufacturers’ margins were up 4% to a record high level of US$1,115 per ton in the international market in October 2021 over the previous week.

PVC-Ethylene margins were at a record-high level of US$1,115/ton in the international market. According to a report by Sherman Research, the margin increased by 4% (or US$45/ton) from the previous week.

PVC pipe manufacturers’ margins previously hit their peak at US$1,088 per ton in March 2021 when PVC pipe manufacturers shut down petrochemical plants in Texas due to freezing temperatures.

This week’s margins expanded on the back of a 3%WoW rise in PVC prices, currently hovering at US$1,650/ton owing to concerns regarding global supply as ongoing power shortages in China are expected to suppress PVC production in the near term, the majority of which is reliant on coal.

Meanwhile, Ethylene prices improved slightly by 1%WoW to US$1,070/ton on the back of improvement in upstream crude oil prices in the Asian region.

Thus, average international PVC-Ethylene margins are off to a stellar start this quarter, which will likely enhance EPCL’s profitability in the near term. Margins averaged around US$840/ton in 3QCY21.

Assuming international margins prevail near the US$1,000/ton level in 4QCY21, we expect EPCL to post CY21 EPS of around Rs16.7. To note, our margin assumption for 4Q is US$800/ton, and the CY21 EPS estimate of Rs15.

Sherman Research said that any US$10/ton change in the primary margin could alter EPCL’s annualized EPS by around Re0.3.

The PVC-Ethylene margin increased by 4% (W (the US $328/ton) to the US $940/ton in the international market on June 22, 2021.

Margin expansion was fueled by an 8% drop in global ethylene prices (the raw material for PVC), which are currently hovering around the US $840/ton. Despite firm international oil prices, spot ethylene prices fell on a weekly basis due to ample supply in the region, especially from China.

On the other hand, PVC prices remained flat WoW at US $1360/ton on the back of firm prices in China and improving demand from India due to the easing of the Covid-19 induced lockdowns.

The PVC-Ethylene margin had inched down by 3.1 % week on week basis (WoW) to US$ 870/ton following a fall in prices on June 4, 2021.

Earlier, PVC-Ethylene margins had fallen to US$838 per ton on May 25, 2021, down by 22% MoM.

More Read: EPCL reduces the price for PVC by Rs 190 per bag

PVC price had declined by 16% MoM to US$1,350 per ton on May 25, 2021, attributed to persistent sluggish buying sentiments across Asia. Local PVC prices have declined by 10% from the early April 2021 peak.

Ethylene price is hovering around US$1,015 per ton, down 4% MoM due to improved regional product availability and bearish regional demand trends.

Resultantly, PVC-Ethylene margin had fallen to US$838/ton, down 22% MoM (high hit on March 26, 2021, of US$1,083/ton).

Earlier, margins had inched down by 4% week on week basis (WoW) to US$1,005/ton following a fall in prices.

The margin had narrowed on the back of a 1%WoW decline in prices,  hovering at US$1,550/ton. PVC prices had tumbled on lower demand from India and sluggish buying sentiment in the region. However, major PVC pipe manufacturers had started price discussions for June deliveries in the ongoing week.

Read More: South East Asia PVC prices declined to USD 1,350

Earlier, in October 2020, Margins had crossed US$700 per ton as ethylene prices fall.

The prices had increased to USD 1,080 per ton, taking margins to an all-time high of USD 675 per ton on October 10.

Read More: PVC margins cross the benchmark of $1,000 per ton

As per a recent market intelligence report issued by Platts, Westlake Chemical had declared force majeure on August 31 North American polyvinyl chloride and upstream vinyl chloride monomer, with widespread power outages and damage at its Lake Charles, Louisiana, complex leaving production offline for an indefinite amount of time, according to a letter to customers S&P Global Platts obtained.

The force majeure condition had also resulted in supply disruptions and limited manufacturers’ ability to meet anticipated product demand.

The EPCL increased prices due to a supply shortfall in the global market effective from October 15, 2020.

In Pakistan, domestic prices had been witnessing rising trends in prices. Engro Polymer Company Limited, the only PVC pipe manufacturer in Pakistan, had made a hiked its prices by Rs22,000 per ton since the last week of August 2020, following an uptrend in the global market.

Read More: EPCL increases PVC prices to produce pipes

Engro Polymer had hiked PVC prices by 522-525 Rs/bag effective October 15, 2020.

Following a fresh increase in prices, the new prices had jumped up to Rs 260,000 per ton against Rs 240,000 per ton.

When the coronavirus pandemic outbreak occurred, the world went on lockdown, resulting in distress in economic activities. Economic shocks gripped the world in April this year, resulting in lowering the demand for PVC. The demand shrunk in the construction industry.

Pakistan had faced also faced an economic slowdown. However, the PTI government had announced a bailout package for the construction industry to revive the economic circle.

Following this, the demand for PVC in Pakistan also jumped up, and EPCL increased PVC prices following higher demand. EPCL has also increased prices of PVC again, which market experts term a ‘short-term phenomena’ due to demand and supply issues in the global market.