Market outlook: India PVC becomes a global benchmark

PULLQUOTE: An analysis gives rise to the

need to establish a price

benchmark that is able to

capture these diverse aspects

of PVC trade in India, and one

that can yield an assessment

that is truly reflective of the

broader market

GettyImages
India PVC imports are burgeoning

A steady rise in demand and imports has made India one of the most closely tracked polyvinyl chloride (PVC) markets worldwide.

With its high dependence on imports and promising prospects in the downstream agriculture and construction sectors, the country is likely to remain at the forefront of global PVC trade.

According to industry estimates, the Indian PVC market grew by close to 10% in the 2015-2016 fiscal year (ended March 2016) and stood at 2.7m tonnes. Imports in this period grew by a robust 16% year on year, to close to 1.6m tonnes, surpassing domestic production.

That year, 74% of PVC in India was consumed in the pipes and fittings sector. This is in stark contrast to the consumption pattern worldwide, where pipes and fittings account for only 43% of the total. Today in India, applications other than pipes are seen as high-growth markets.

The Indian government continues to put emphasis on increasing cultivable land and supports that drive with subsidies and investments designed to promote agricultural output. This is expected to boost demand for PVC pipes across the country.

On the other hand, a rising middle-income population is expected to support an increased need for housing in both urban and rural areas, lifting demand for pipes; window profiles; PVC wire and cable products; and flooring.

PVC also finds applications in packaging, pharmaceuticals and fast-moving consumer goods – end-use sectors that are all poised to grow to cater to the needs of a growing population.

India’s per capita PVC consumption is around 2kg, which is low compared with 11.8kg in the US and over 10kg in China. But PVC growth in India over the past 10 years has been remarkable.

Total Indian PVC demand stood at just under 3m tonnes in 2015 and saw a compound annual growth rate (CAGR) of 10.06% between 2005 and 2015, according to ICIS. India also overtook China in 2012 to become the largest PVC importer worldwide.

LOCAL PRODUCTION HAMPERED

Most of the PVC produced in India is based on imported ethylene dichloride (EDC) or vinyl chloride monomer (VCM).

The widening supply/demand deficit has created room for new capacities, but the lack of ethylene availability has deterred most Indian petrochemical manufacturers from planning new manufacturing facilities.

Moreover, a PVC production unit would also call for additional investments and outlets for caustic soda and chlorine, adding on to the capital expenditure and making the investment less attractive.

High import dependence is also furthered by the existing shortage of power in India.

Attractive margins and lower capital spending in polyolefins productions are other factors that hamper the attractiveness of the setup of chlor-alkali manufacturing facilities.

A GLOBAL MARKETPLACE

It comes as no surprise that a booming market such as this has invited the attention of players of all sizes from the world over. India imported PVC from more than 30 countries in fiscal 2015-2016. Most PVC imports are done on spot basis and hence subject to a high degree of uncertainty on many fronts.

The impact of raw material prices and supply and demand swings is felt keenly in India given the fragmented nature of end-use markets.

According to industry sources, around 2,500 processors are involved in PVC processing in the country with a large majority converting the polymer to pipes. Their consumption of PVC ranges from a few thousand tonnes a month to a few hundred tonnes in a year.

Traders are also very active; more than 70% of imports into the country are channelled through traders. Small and medium-sized PVC processors often prefer to purchase from traders to avail themselves of benefits like local storage and credit payment facilities, thus reducing the load on their working capital.

India’s role in the global PVC trade has turned the spotlight on the CFR (cost and freight) India price, making it relevant as a price benchmark.

Typically, the market has relied on producers’ offers, usually made around the 15th of each month, as a guide and the start of the purchase cycle. Domestic producers too have looked at international offers for setting local prices.

However, this does not fully take into account the complexities of Indian imports and the impact of variables such as import duties, anti-dumping duties (ADDs) and voyage times.

EVOLVING IMPORT PATTERNS

India’s import pattern is continuously evolving. Taiwan used to be the largest supplier to the country, but its share has declined with the entry of new players. Its share is likely to fall further given strong growth prospects for Indian PVC imports.

Though Asia’s share as a percentage of total Indian imports has gone up since 2010-2011, much of this has been brought about by the increase in imports from Japan and China. Also, the number of suppliers competing for market share is increasing.

The unit pack size also tends to distort PVC import prices. Asian material is often sold in standard 25kg bags, while deep-sea material is mostly sold in “jumbo bags”. Jumbo bags vary between 1,100kg and 1,300kg, and are often the preferred option for large volume end-users able to secure competitive prices due to lower freight costs. Different packaging also means different prices. Iranian and Japanese suppliers are known to give buyers these packaging options.

An increase in automated processing systems and the use of assembly lines in polymer processing are cited as factors that could support an increase in jumbo bag demand in the years ahead.

Preferential import duties and ADDs imposed on several-origin PVC imports impart further complexity to the market, as they contribute to increased variance among prices from different suppliers.

NEED FOR A BENCHMARK

An analysis of the above gaps gives rise to a need to establish a price benchmark that is able to capture these diverse aspects of PVC trade in India, and one that can yield an assessment that is truly reflective of the broader market.

ICIS provides a weekly CFR India assessment that captures prices of deals and discussions for PVC cargoes from all origins. The assessment also takes into account preferential import duties and ADDs if any, and normalises these to assess all cargoes at parity.

ICIS believes that this assessment fits and bears the traits required of a benchmark, and would be an effective platform on which PVC trade can be based on.

ICIS is also looking to launch a second CFR India quote to capture trade for jumbo bag PVC cargoes, in line with the growing demand and discussions seen, and is currently engaged in talks with market players to explore the possibility and use of this quote.