Low input material price to support profit margins of plastic businesses

02:36 PM @ Wednesday - 28 September, 2022

Viet Nam is currently heavily dependent on the import of PVC resins - input materials in the construction plastic production chain. In the second half of this year and 2023, Vietcombank Securities Co (VCBS) forecasts that a low PVC price will support profit margins of businesses.

According to VCBS, PVC prices in the second half of 2022 and in 2023 will remain at a low price level in the range of US$800-1000 per tonne, helping the profit margin of plastic enterprises to stay positive.

The supply shortage in the US has recovered and the global supply has increased sharply due to the expansion plan of large enterprises. In the short term, major manufacturers in India, the US and China have invested in expanding PVC production with a capacity of millions of tonnes. From now to 2026, PVC capacity will increase by 17 per cent to 70 million tonnes per year.

The demand for PVC dropped sharply in China due to the sluggish real estate market, in which the demand for PVC for construction in this country accounted for 62 per cent. Until the end of 2023, VCBS believes that the demand for PVC will continue to stay low when the number of projects starting in China at present stays very low.

PVC prices have a strong correlation with coking coal because most of the production now depends on China. Production costs of coking coal are forecast to drop sharply to $280 per tonne in 2023, according to Fitch Solutions, helping PVC manufacturers in China maintain competitive prices with the EU and the US as these countries are facing a severe energy shortage and high input prices.

In the second and third quarter of 2021, the profit margins of enterprises such as The Binh Minh Plastic Joint Stock Company (BMP) and Tien Phong Plastic Joint Stock Company (NTP) were heavily affected due to the galloping increase in PVC input prices and the impact of the social distancing measures in key areas, reducing output and increasing costs.

However, the recent downward trend in input prices will be the driving force for expanding profit margins for BMP and NTP in the second half of 2022 and 2023.