PVC prices soar to highest since 2014

Spike comes after US plants halted production due to Covid-19

Prices of polyvinyl chloride (PVC) have soared to their highest level in Pakistan since 2014 as US plants halted production due to Covid-19.

PVC prices surged to $1,010 per ton in the backdrop of Covid-induced lockdown, stated a report of Taurus Securities.

“Engro Polymer and Chemicals Limited (EPCL) is the only company that produces PVC in Pakistan while the rest of the players import it instead of importing its raw material to produce finished PVC in Pakistan,” said Taurus Securities’ analyst Nabeel Dochki while talking to The Express Tribune.

“When prices rise in the international market, the price of the chemical increases in Pakistan as well without any gap,” he said. PVC prices surged by around 41% in the last two months, he added.

The price of ethylene core delta increased to $598 per ton, Dochki said, explaining that core delta was the margin between PVC and ethylene, the main raw material in PVC manufacturing, whose prices rose 28% year-on-year.

The increase was mainly attributable to the recovery in demand after the relaxation in Covid-19 lockdown, which could not be managed by global suppliers due to several supply-side constraints, he said.

Similarly, ethylene prices have recovered to $825 per ton, up 4.4% year-on-year.

According to estimates, PVC prices are expected to stabilise by the end of November 2020 when two of the four largest US PVC manufacturers are expected to restore production.

“During the pandemic, all four major PVC manufacturers in the US rescheduled their turnaround between April and September due to a plunge in demand, however, the demand for PVC recovered significantly in July after which prices started increasing,” he added.

The recovery was followed by plant shutdowns at two manufacturing facilities and both declared force majeure on August 14 and August 31, respectively, Dochki said.

On the other hand, the State Bank of Pakistan (SBP), under its initiatives to boost construction activities, directed banks to ensure allocation of at least 5% of their private sector credit portfolio to financing construction activities by December 2021.

The directive came along with an incentive and penalty mechanism to ensure that banks achieve their respective construction sector lending targets.

“Consequently, we expect an inflow of Rs171 billion into the construction sector by December 2021,” said the analyst.

According to the Engro Polymer management, around 50% of its sales are driven by the construction sector, hence the company is expected to benefit from the expected uptick in demand.

Published in The Express Tribune, October 23^rd, 2020.

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