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India's decision to reduce the import duty on polyvinyl chloride to 7.5% from 10%, effective May 22, was expected to weigh on prices in an already weak market, sources said May 23.

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"We are ... reducing the customs duty on raw materials and intermediaries for plastic products where our import dependence is high. This will result in reduction is cost of final products," finance minister Nirmala Sitharaman said when announcing the reduction, aimed at cooling inflation.

India's retail inflation based on the consumer price index hit an eight-year high 7.79% in April.

PVC CFR India was assessed by Platts at $1,400/mt on May 18, down 26% from a peak at $1,900/mt last October to the lowest level since July 2021, according to S&P Global Commodity Insights data.

"Prices were already bearish due to high imports from China. The reduction in duty will send them into a tail-spin," a buyer said.

India had in February allowed an anti-dumping duty on PVC imports from China and US to lapse, leading to a surge in imports from China that sent prices lower.

According to Chinese customs data, the country exported more than 99,000 mt PVC to India in April alone, accounting for nearly a third of China's total PVC exports of 278,376 mt during the month.

Sources said India's PVC imports from China were expected to account for more than half of its imports in April. In 2021, India imported 1.7 million mt PVC resin, of which imports from China accounted for 17%. Domestic production was around 1.6 million mt.

Following the news of the duty reduction, India's domestic PVC resin prices fell Rupees 2/kg (2.6 cents/kg) to Rupees 119-120/kg ex-Mundra, sources said.

Though converters of PVC resin to plastic compounds were happy with the reduction in input costs, domestic PVC producers said it would crimp margins and affect capacity addition in the long run.

"Cheaper imports will reduce attractiveness for new investment in PVC, where capital costs are already very high for integrated producers," a source said.

Though PVC demand in India was expected to grow at a compound annual growth rate of about 7% over the next 7-8 years, domestic production capacity has been stagnant at around 1.6 million mt for more than a decade.

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