Hanoi (VNS/VNA) - Plastic granule prices are expectedto fall in the short term, a favourable circumstance that would drive plasticproducers towards better profitability.

Vietcombank Securities Company Ltd (VCBS) forecast that PolyvinylChloride (PVC), an input material for plastic production, would remain at lowprices towards year-end and into 2023 on rising global supply.

Its forecast prices of between 800-1,000 USD per tonne areprojected to significantly improve domestic plastic firms' profit margins.

Specifically, giant PVC suppliers in China, India and the US havebegun to expand their production to boost PVC output to 70 million tonnes peryear by 2026.

The abundant supply is fuelled by the falling consumption of PVCin China, which a PVC-consumed realty sector in decline has caused. VSBCforecast that the weak demand would hold steady until late 2023 since not manynew projects in the country would get underway.

According to Fitch Solutions, PVC prices correlate strongly withcoke prices because a major portion of global PVC supply comes from China. Ascoke is projected to drop to 280 USD per tonne in 2023, China would have moreroom to reduce PVC prices to a level comparable to those in the US and EU.

Good news also comes from the demand side. In the first half of2022, the number of apartments under construction in the northern region of Vietnamgrew steadily, lifting domestic demand for plastic pipes.

VCBS forecast that the demand would remain high in the comingyears as the country still has ample room for urbanisation, and many legalobstacles to realty projects are expected to be removed in 2023. As a result,VCBS estimated the growth rate of the building plastic industry at around 7-10%on the horizon.

The plastic industry comprises two main sub-industries: plasticpipes and building plastic materials.

In the former, Binh Minh Plastics JSC (HOSE: BMP), Tien PhongPlastic JSC (HNX: NTP), Hoa Sen Group (HOSE: HSG) and Tan A Dai Thanh Group JSCtake up 90% of the market shares.

Meanwhile, the latter is more fragmented and faces stiffcompetition from China. Dong A Plastic JSC (HOSE: DAG) is a large producer inthe sub-industry, holding roughly 20% of the market shares.

Vietnam is highly dependent on imported PVC because the only twoproducers in the country, AGC Chemicals Vietnam Company Ltd and TPC VINAPlastic & Chemical Corp Ltd, crank out 390,000 tonnes of the thermoplasticannually, about 700,000 tonnes short of domestic demand.

As PVC contributes to 70% of the costs of gold sold (COGS)incurred by building plastic firms, their profit margins are closely linked toglobal PVC prices, which, in turn, come under the influence of PVC supply-demandin China and the US. The two countries control 50% of the global PVC market.

Undoubtedly, PVC prices falling to 950 USD per tonne in the firsthalf of 2022 were caused predominantly by the falling demand in China and therecovery of PVC production in the US.

VCBS believed the falling prices of plastic granules would improveBMP's and NTP's profitability in the second half of 2022 and 2023. Their betterfinancial performance would act as a catalyst for their bullish stocks in theshort term.

Their research and development on new plastic pipes, such as HDPEand PPR pipes, would further improve their earnings, adding to the optimisticoutlook./.