The increase came on the back of a 9% decline in the Ethylene prices, currently at US$900/ton whereas spot prices were under pressure due to sluggish demand from Chinese buyers owing to the rising Covid-19 cases.
Meanwhile, PVC prices were relatively stable on a weekly basis at US$1,250/ton on account of a slight increase in demand from South East Asian buyers. However, higher exports from China helped offset the impact and kept PVC prices stable.
Thus, lower Ethylene prices and stable PVC prices widened margins by US$42/ton WoW.
PVC-Ethylene margins have averaged around US$380/ton in the last 10 years whereas current margins are at a premium of around 1.1x compared to the 10-year average.
Going forward, based on our assumptions, we expect margins to settle at US$410/ton in the long term.
We have a ‘Buy’ stance on EPCL — our top pick in chemical sector, currently trading at 2021 PE of 7.4x and implied PVC-Ethylene margin of US$375/ton.
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