German PVC producer Vestolit expects European polyvinyl chloride (PVC) demand to grow at a pace of 2-3% a year, following years of contraction, amid a revival in the construction sector, company CEO Michael Trager said Monday.
Over 60% of Western Europe's annual PVC production is used in the construction sector, with house-building in northwest Europe consuming the polymer for pipes, windows and doors.
"If the positive economic trend continues, we will see a recovery of the construction industry that may lead to an annual demand growth in PVC of 2-3% in Europe," Trager said.
Since the economic crisis hit the Eurozone, the sector has suffered sustained margin pressure due to weak demand from the construction industry and overcapacity, Trager said.
"Obviously, the closure of some 5% of the pre-crisis PVC capacity was not sufficient to re-balance supply and demand," he added.
However, recent growth in the UK and German construction sectors has inverted the trend and generated additional demand for PVC after six years of slumping sales.
The UK construction Purchasing Managers' Index (PMI) eased to 60.8 in April from 62.5 in March, but the index has been above the 50 threshold, denoting growth, for a full year, with house building the best-performing construction sector last month, according to data firm Markit Economics earlier this month.
In Germany, the construction sector contracted for the first time in a year in April as new orders declined, but the outlook remains bright with 16% of those surveyed expecting activity growth in the next 12 months versus 13% seeing a decline, said Markit Economics.
Rising construction demand should also boost PVC profit margins. However, Trager warned that only the "fittest" PVC producers would survive.
"'Fittest' means economies of scale and cost control, particularly upstream of the chain," he said.
In addition, he said that downstream, the strongest PVC consumers have innovative products and a business culture that enables them to move quickly in export markets.
"Well positioned seem to be the small and medium sized converters that form the industrial backbone such as in Northwest Europe including Italy," Trager said.
Italy's March seasonally adjusted construction index increased by 1.9% compared with the previous month, in line with other similar positive economic data in recent months, including industrial production and car sales, latest figures released by national statistics office showed Monday.
