Recently, Grasim Industries Limited entered into an agreement with Lubrizol Advanced Materials to manufacture and supply chlorinated polyvinyl chloride (CPVC) resin in India with initial production expected in late 2022. Lubrizol is the world leader in chlorinated polyvinyl chloride (CPVC) resins and compounds. This special type of polymer material is widely used in hot and cold water pipes. Construction of the near 100,000 metric ton plant will take place in a phased manner, and once commissioned, this would be the single largest site capacity for CPVC resin production globally. Though the proposed plant will see the light of the day only after two years, the plan throws some light on things to come in the industry in the days to come.
Plastic pipes are made of different types of polymers. The four major types are unplasticized polyvinyl chloride (UPVC), which represents 75% of industry demand, chlorinated polyvinyl chloride (CPVC) – 12%, HDPE – 8% and polypropylene (PPR) – 5%. Composite pipes, which have a mix of metal and plastic layers, are also used for similar applications. Among several variants of plastic pipes available in the market, the demand for UPVC and CPVC, in particular, has been rising owing to affordability, high quality and durability.
Shift from metal to polymer based pipes
Last decade also saw the large-scale shift from metal to polymer-based pipes in most applications. This was especially true in case of plumbing and piping applications in the construction industry. Rigorous and intensive research in specialised products for specific applications has resulted in development of polymers such as CPVC for hot and cold water plumbing, firefighting and transportation of industrial fluids. The CPVC segment, which poses technological barriers to enter, has also given branded players an opportunity to increase their market share. Till recently, UPVC dominated the plastic pipes industry with several unorganised players was posing stiff competition to branded players.
Branding in plastic pipes
Interestingly, in plastic pipes branding plays an important role and this is increasingly case in the last ten years or so. One of the biggest changes came in the real estate plumbing sector in which pipes was no longer a low-involvement category product as it was a decade ago. Consumers started demanding better products and newer plumbing systems. This was owing to pressure on the land bank in metropolitan cities as well as tier-I and tier-II cities, which witnessed a boom in high-rise constructions. Such construction was made possible thanks to advancements in construction technology which has forced changes in the design and layout of drainage systems. Vertical growth and premium architectural designs demanded premium drainage systems having low noise properties. Many branded pipe manufacturers have launched new products to meet this demand. Consequently, branded players were able to record higher sales growth in the past decade than unorganised players.
Implications of Grasim-Lubrizol move
Keeping these factors in the background, the industry captains have now started analysing the implications of latest Grasim-Lubrizol move on the industry in the years to come. The proposed plant will be developed in phases and in the first phase about 50,000 tonnes capacity may be made available and that too in the second half of calendar year 2022. It should be noted that post the initiation of anti-dumping duty (ADD) on Chinese/Korean imports of CPVC resin/compound into India, market share gains by Japanese and US CPVC resin/compound suppliers have resulted in these players currently operating at higher capacity utilisation. Local availability of resins will ensure smooth supply of raw materials for the current licensees of Lubrizol, viz., Prince Pipes and Ashirvad. Long term supply security may also encourage these players to go for capacity expansion in the coming years. It should be noted that CPVC is one of the fastest growing plastic pipe segments in the country in recent years and as such there is already enough incentive for the pipe manufacturers to think in terms of capacity expansion.
Localisation of production of the major raw material for CPVC will also have some cost implications. At present, Lubrizol’s pricing of CPVC resin/compound to its licensees has been at a sizeable premium compared to its Japanese counterparts. In the long run, there could be a case for potential easing of cost structure for both Prince Pipes and Ashirvad as Lubrizol may pass on some of the cost arbitrage benefits (from this new facility) in the quest to absorb its incremental capacities once the 2ndphase commences operations.
Though the current capacity planned by the proposed venture is just enough to meet the demand of existing licensees, situation may drastically change if there are other major capacity addition plans by other players. If that happens, it may eventually lead to commoditisation of CPVC market which may be the last thing present players expect. However, for the time being it will be smooth ride for them.