HomeIndustry TrendsPVC pipe makers are optimistic about their prospects

PVC pipe makers are optimistic about their prospects

In last one month or so, PVC (polyvinyl chloride) prices are on downward journey. In a span of four weeks PVC prices were revised downwards four times and as a result PVC price has corrected by 12%. Today PVC price is ruling at five quarter lows. And more importantly, PVC manufacturers believe that downslide has not touched the bottom yet, meaning there is still scope for further slide.

However, PVC manufacturers are not unduly disturbed by these developments which they believe is a short term phenomenon. For them, long term growth prospects of the industry is still in tact.

PVC pipes

Nearly 73% of the PVC produced in the country is consumed by the pipes and fittings segment while films, calendaring, profiles, etc. account for the rest. Nearly 80% of the pipes manufactured in the country are PVC pipes. CPVC (chlorinated PVC), UPVC (un-plasticised PVC), HDPE (highdensity polyethylene) and PPR (polypropylene) are the other materials used in pipes and fittings in the country.

Some of the leading pipes brands are Supreme, Finolex, Astral, Ashirvad and Prince. Finolex is the leader in the agri-pipes, followed by Supreme. Astral is also getting into the agri-pipes to leverage its strong brand identity. Supreme is the most regarded in PVC pipes in non-agri sector.  Astral and Ashirvad are the most popular brands in CPVC pipes, used in plumbing.

More than 2/3rd of PVC resin in India is consumed in manufacturing pipes and fittings while globally this ratio is just 44%. However, in recent times, PVC profile & sheets sector is also gaining traction and this segment consumes 0.17 million tonnes annually. The uPVC window category is growing at 15% while sheet is growing at more than 25%. Increasing popularity of green building and acceptance by India’s builders and architects is driving demand.

Southern market is demand driver

In terms of region-wise demand, South India is the biggest market for PVC pipes in India. Southern states are better developed (as compared to North and East) in agriculture and real estate, thereby driving up pipes’ demand. North Indian market follows South India in terms of PVC pipes demand. North Indian market is characterised by high demand for residential and commercial properties due to increased population. Demand in West India is driven by the agriculture sector. East India is the smallest market for PVC pipes. Demand from agricultural sector is low due to heavy rainfall in this region thus making them  less dependent on irrigation. Real estate sector too is evolving slowly in this region and its only in last few years realty sector has started gaining traction.

Manufacturing capacity

India’s PVC manufacturing capacity currently stands at 1.45 mtpa while consumption catapulted to over 3 mtpa in CY18. With the rising demand for PVC pipes and lack of any capacity addition in PVC in India, imports of PVC are expected to swell to 2.8 mtpa in CY22 vis-à-vis 1.8 mtpa in CY18. Lack of feedstock (naphtha and ethane) availability in India will restrict capacity additions until 2022.

On the other hand, global PVC capacity at end-FY18 stood at 55.2 million tonnes while total demand stood at 45.4 million tonnes. In other onwards,  PVC plants are currently operating at 80% utilization rate. According to some reports no major PVC capacity expansion is expected to happen until 2024. Some analysts are of the opinion that current PVC prices do not justify new investments in world scale plants in North America and Europe. In China also, no new approval for acetylene route PVC facilities is expected unless under exceptional circumstances. With no major capacity on the anvil, capacity utilisation by 2024 is expected to touch 95% and with that prices too are likely to firm up which in turn may attract new investments. But this may happen only after five years.

According to industry experts, PVC demand in China and India is expected to grow by 5mn tonnes and 2mn tonnes, respectively, by 2024. They also believe that these two countries would drive PVC demand in Asia in the next five years. They also project that PVC industry in India would post CAGR of 6.6% till 2024.

Import dependency

55% of Indian PVC demand is met through imports while the rest is being taken care of by domestic manufacturers. Taiwan, Japan and South Korea are three of the biggest PVC suppliers for India. During the same period  PVC imports from the US to India went up by 6 times over CY15-18. US exports to India may increase significantly in the upcoming years. The US is likely to remain one of the low-cost producers of PVC (since ethylene is derived using ethane route as against naphtha and ethane is available in abundant in US).

Anti-dumping duty review

Keeping in mind the huge quantity of PVC being imported from other countries, the government had imposed anti-dumping duty (ADD) on the imports ranging from USD 29.99-163.05 per tonne. ADD represents 3-15% of current PVC price. However, ADD is expected to be reviewed by June and after review it is expected that ADD would be either reduced or dropped. If ADD is reduced or dropped, importers are likely to pass on the benefits to the consumers by way of price reduction. Domestic PVC firms sell PVC at prices at par with import firms. If importers drop their prices, domestic firms too may drop their PVC prices.

In terms of growth, FY 2019 was a moderate year for the industry as the industry grew by just 4.3% as against a CAGR of 7% over the past seven years. According to PVC manufacturers, slower growth of the industry in the last financial year was mainly due to significant slowdown in real estate sector. However, industry people feel that current financial year should be better than previous year and they hope that real estate industry would revive post elections which in turn would help the PVC industry to pick up the growth pace.

The long term prospects of the industry appear to be even better with the government giving more emphasis on housing. According to government estimates, housing shortage is to the tune of 22 million units in urban areas and 55 million units in rural areas. Increasing replacement of conventional piping systems by CPVC pipes, and rising demand for new technology pipes such as PVC-O, foam core pipes, etc. are some other reasons why PVC pipes manufacturers are optimistic about their industry’s prospects in the coming years.

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