A factory of Binh Minh Plastic JSC (BMP). After increasing the selling price to 59 million VND (2,486 USD) per tonne in the first half of 2022, Binh Minh Plastic JSC (BMP) has no plans for further adjustments in the second half of 2022, which will be the driving force to continue expanding profit margin. (Photo courtesy of BMP) According to VCBS, PVC prices in the second half of 2022 and in2023 will remain at a low price level in the range of 800-1,000 USD per tonne,helping the profit margin of plastic enterprises to stay positive.
The supply shortage in the US has recovered and the global supplyhas increased sharply due to the expansion plan of large enterprises. In theshort term, major manufacturers in India, the US and China have invested inexpanding PVC production with a capacity of millions of tonnes. From now to2026, PVC capacity will increase by 17% to 70 million tonnes per year.
The demand for PVC dropped sharply in China due to the sluggish realestate market, in which the demand for PVC for construction in this countryaccounted for 62%. Until the end of 2023, VCBS believes that the demand for PVCwill continue to stay low when the number of projects starting in China atpresent stays very low.
PVC prices have a strong correlation with coking coal because mostof the production now depends on China. Production costs of coking coal areforecast to drop sharply to 280 USD per tonne in 2023, according to FitchSolutions, helping PVC manufacturers in China maintain competitive prices withthe EU and the US as these countries are facing a severe energy shortage andhigh input prices.
In the second and third quarter of 2021, the profit margins ofenterprises such as Binh Minh Plastic Joint Stock Company (BMP) and Tien PhongPlastic Joint Stock Company (NTP) were heavily affected due to the gallopingincrease in PVC input prices and the impact of the social distancing measuresin key areas, reducing output and increasing costs.
However, the recent downward trend in input prices will be thedriving force for expanding profit margins for BMP and NTP in the second halfof 2022 and 2023.
"VCBS believes that the business results of BMP and NTP inthe third quarter of 2022 will grow well compared to the low base level of2021, which may be a supportive factor for the uptrend of stock prices,"VCBS report said.
Civil plastic pipes
In the first half of 2022, the number of real estate apartmentsconstructed in the North showed strong growth after a long period of decline,which helps boost plastic pipe consumption in this segment in the second halfof 2022 and 2023. Contrary to that, the number of new apartments in theSouthern region showed a trivial amount, which will put pressure on consumptionin the near future.
In the long-term, VCBS believes that sales volume still has greatgrowth potential as Vietnam's urbanisation rate is still low and legal problemsfor real estate projects are expected to be solved in 2023.
However, with a relatively high per capita PVC consumption rate inthe region and close location to China, VCBS estimates that Vietnam’s plasticgrowth in the next period will be at 7-10%, much lower than 15-20% of the 2014- 2017 period.
The price of PVC input materials, after increasing from 900 USDper tonne to 2,000 USD per tonne in November 2021, has dropped sharply to 950 USDper tonne. After increasing the selling price to 59 million VND (2,486 USD) pertonne in the first half of 2022, the Binh Minh Plastic Joint Stock Company(BMP) has no plan to adjust the selling price in the second half of 2022, whichwill be the driving force to continue expanding profit margin.
In the second half of 2022 and 2023, consumption in theSouth will only recover from the low base of 2022, not seeing stronggrowth compared to before the COVID-19 pandemic because the new supply is quitelimited.
In the long term, VCBS expects the supply recovery from realestate projects to be the main revenue and profit driver for BMP. BMP is alsovigorously implementing its plan to increase its market share in the Northernand Central markets with attractive promotion policies.
Tien Phong Plastic Joint Stock Company (NTP) will directly benefitfrom the sharp decline in PVC prices in the second half of 2022. With theprospect of PVC prices remaining low in the near future, NTP’s businessperformance will be markedly improved.
Accounting for 60% of the market share in the North, NTP's salesvolume will be boosted when the number of apartments being built in the Northrecovers positively in the first half of 2022./.
VNA
