Polymer producers have raised their product prices second time in a month after their costs for crude oil, the sole raw material for production, went up. Average price increase is 2.5 per cent to 3 per cent in January after a sharp fall in last four months of 2018.
Primary polymer producers have raised their product prices by Rs 1,000 of various grades in tune with the movement in crude oil prices. Price of plastic raw materials including high-density polyethylene (HDPE), low density polyethylene (LDPE), linear low density polyethylene (LLDPE) and polyvinyl chloride (PVC) have also risen in tandem to take advantage of crude oil price rise.
Polymer price rise, however, may hit the profitability of user industries like plastics. While most price hikes are passed on to consumers, the ongoing depressing demand sentiment is set to lower profit margins of user industries forward. PVC, high and low density polyethylene and other polymers are used for manufacturing various kinds of plastic goods. These polymers are produced from crude oil by refineries and polymers price usually follow crude oil except when their demand-supply factors differ in short term.
“Major polymer producers have raised their product prices by Rs 1000 per tonne to cover rising input cost,” said a leading Delhi-based distributor of large polymer producers.
After hitting its recent low of below $50 a barrel, Brent crude oil rebounded to trade currently at $60.5 a barrel today. This means, crude oil prices have gained by over 20 per cent from its recent low resulting into a proportionate increase in the prices of its derivatives including polymer and plastic raw materials.
“Post June – September 2018 period, despite steep (over 30 per cent) fall in crude prices, PVC prices, after falling by 4 per cent on October 1, held firm until end-November against expectations of a decline. After a gap of two months, PVC prices fell by 2.5 per cent on December 1, 2018,” said Nehal Shah, an analyst of ICICI Securities.
"While the trade was expecting further fall in PVC prices, they increased by 2 per cent and 1.3 per cent on December 20, 2018 and January 1, 2019, respectively. This we believe has resulted in incremental filling of inventories at distributors’ end in the last few weeks before the end of the quarter. We thus expect PVC pipe players to post double digit volume growth in September – December 2018 quarter,” said Shah.
Amidst expectations of decline, prices of polyvinyl chloride (PVC) have risen unexpectedly by 3.3 per cent led by recent consecutive price hikes. Producers have raised their PVC prices twice in the second fortnight of December despite a sharp fall in the crude oil prices. Primary polymer producers continued their price increase trend have raised their product prices further by Rs 1000 last week following a sharp rebound in crude oil prices.
Contrary to the trend in PVC prices, prices of other polymers including HDPE, LDPE, Polypropylene, Polyethylene etc witnessed significant fall in their prices by upto 18 per cent after September quarter. This is likely to result in near-term inventory loss for companies dealing in products like plastic furniture, HDPE pipes, crates and protective packaging.
“The trend in prices of these polymers going forward is likely to be in sync with crude price movement,” said Shah.
The polymer price rise has impacted profitability of user company Supreme Industries which posted 302 bps contraction in its EBIDTA margins for October – December quarter 2018. The company’s net profit declined to Rs 80.98 crore for October - December quarter compared to Rs 104.21 crore in the corresponding quarter last year. The company posted a total income of Rs 1417.84 crore for October – December 2018 quarter compared to Rs 1278.80 crore for the same quarter last year.