Economic recession in developed countries and a massive slowdown in developing nations have weighed on global polyvinyl chloride (PVC) prices in the past one-and-a-half years. Although prices of the plastic raw material slumped to trade closer to the pre-pandemic levels, experts anticipate its southward journey to continue in the next few weeks due to global demand headwinds.
After trading in a narrow range between US$830 and US$1000 a tonne for over three years ending March 6, 2020, the benchmark suspension grade PVC prices for CFR in Far East Asia suddenly moved in India to a high volatility zone. The commodity plummeted to US$630 a tonne in the first week of May 2020 before moving up to US$1780 a tonne on October 27, 2021. The same benchmark commodity price slipped thereafter to trade now at US$820 a tonne in the Indian markets.
In addition to the geo-political developments worldwide, the domestic demand-supply factor contributed to the movement in PVC prices in the rupee value. From the level of Rs 75-80 a kg in the pre-pandemic level, PVC prices in the rupee value jumped to trade at Rs 185 a kg late last year on supply disruptions in the aftermath of the second Covid wave. With the dust of the second Covid wave settling down, PVC prices slipped to trade now at Rs 85-97 a kg, data compiled by Polymerupdate Research showed. But, a million-dollar question still exists – whether PVC prices bottomed out.
Arafat Saiyed, an Analyst with Reliance Securities Ltd, said, “The PVC prices have largely bottomed out. From here, we can see a limited downside of 5-10 percent towards the pre-pandemic level of Rs 75-80 a kg. But the reversal is imminent thereafter. So, we can simply say that PVC prices are hovering near the bottom.
The global PVC output is estimated at a little over 60 million tonnes of which China contributes 43 percent. The combined share of the United States and the European Union stands at nearly 27 percent with a cumulative volume of around 16 million tonnes. With around 1.6 million tonnes of annual output, India stands nowhere on the global PVC production map as its volume contributes a mere 2.7 percent. With its mere production, India meets only 42 percent of its demand from domestic sources, while the remaining 58 percent is met through import largely from China and United States. So the global variation does impact PVC prices in India.
Major global producers in the doldrumsUnfortunately, all three major PVC-consuming economies have been reeling under severe economic stress. While China is struggling with sporadic lockdowns in major cities due to renewed Covid spread which is set to impact the country’s economic growth, the United States and the European Union are facing massive inflationary pressure in a challenging economic environment. China, in fact, has adopted a zero-tolerance policy on Covid which means the local authorities declare lockdowns in the entire area even if one virus case is found. Despite repeated protests from the common people across municipalities and its cascading effect on the country’s economy, the Chinese government is continuing with the zero-tolerance policy on Covid.
As a consequence, both the World Bank and International Monetary Fund (IMF) lowered China’s economic growth forecast for the current and the next year. The World Bank has projected China’s economic growth at 2.8 percent for the current year before accelerating to 4.6 percent next year compared to the 8.1 percent reported in the previous year. Echoing a similar response, the IMF estimated China’s Gross Domestic Product (GDP) growth forecast at 3.2 percent for the calendar year 2022 and 4.4 percent for 2023.
Most importantly, construction projects in China are facing a huge liquidity crisis since the collapse of Evergrande in 2021 as the government stopped funding these projects amid fear of default. Thousands of stalled projects are scouting for private funding to complete the projects. But, high-interest rates make these projects unaffordable for developers.
The US in a high pipe inventory zoneThe United States follows a typical PVC pipes demand trend with traders and stockists normally going into restocking mode in the first quarter of every calendar year to prepare for the construction season and also compete with Asian buyers in resin purchase. With the peak demand season starting in March-April alongside the commencement of construction activities, traders and stockists consider this season as the ‘golden period of the year.
The trend continues until September when contractors and distributors clear the unsold inventory to make space for the new products in the pipeline. Again the pipe demand surges in October as contractors look to buy the material they need to complete projects before the winter season sets in with snow and freezing ground up North and rain in the South. With inventory being run down while sales start slowing in mid-November, pipe plants in the US reduce production activity for scheduled maintenance during the Thanksgiving and Christmas holidays.
This year, however, the situation is uncommon as the US stockists are facing huge inventory in their warehouses. Exporters are no longer clamouring for shipments. Additionally, the slowing down of construction projects on a macro-economic level in 2023 amid rising interest rates and speculation that the US economy could enter a recession, have taken a toll on the US pipe demand.
ConclusionWith the end products’ markets struggling to recover from high retail inflation and consumer demand continuing to remain at peril, global PVC demand may remain subdued. Thus, all fundamentals point to softness in PVC prices at least in the near future because of faltering downstream industries.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
