28 February 2005 00:01 [Source: ACN]
ASIAN polyvinyl chloride (PVC) prices were expected to increase by US$50-60/tonne to US$950-970/tonne cfr China in the coming two months on the back of increased demand, tight supply, and high feedstock costs.
Demand from Chinese buyers was expected to increase after the Lunar New Year holidays as the April-May peak season for construction approaches. A Taiwanese producer said it expected PVC demand in China to increase by 9-10% in 2005, in line with China’s economic growth.
Demand in India, where the peak season started in January, was also increasing steadily. The bullish demand was expected to continue until the peak season ends in late May.
‘Demand was picking up from 2H January and PVC pipe manufacturers are ramping up their inventory levels,’ said an Indian producer. ‘Our February contract settlements were at US$885-925/tonne cfr India and we are intending to increase our March contract offers by US$30-40/tonne to US$915-965/tonne cfr India.’
Tight supply of PVC and vinyl chloride monomer (VCM) would also boost PVC and VCM prices in Q2 2005. ‘Supply would be extremely tight in the next two months,’ said a South Korean producer. ‘The Japanese, Taiwanese, and South Korean producers are conducting annual turnarounds on their PVC and VCM plants from March.’
Hanwha Chemical’s 280 000 tonne/year PVC plant in Ulsan, South Korea, will be shut for two weeks in mid-March. Formosa Plastics Corp intends to schedule turnarounds for its 455 000 tonne/year PVC plant and its 800 000 tonne/year VCM plant in Mailiao, Taiwan, for ten days in March.
Meanwhile, in Japan, Shin-Etsu Chemical will shut down its 550 000 tonne/year PVC plant in Kashima for 20 days in 2H May, while Taiyo Vinyl Corp will shut down its 310 000 tonne/year PVC plant in Yokkaichi for 21 days from mid-March to early April.
The Asian VCM supply is also expected to tighten considerably in Q2 2005, further aggravating the tight PVC supply situation. A major VCM Japanese producer said it had sold out all its VCM material for February and intended to increase March prices by US$30/tonne to US$760/tonne cfr Asia.
The major Northeast Asian producers were unfazed by the planned price increase, as they were confident of achieving higher PVC contract prices in April.
‘Even with VCM costs at US$760/tonne cfr NEA and a US$90/tonne conversion cost, producers can still get a margin of US$60-70/tonne with PVC prices at US$910-920/tonne cfr Asia,’ said an industry source.
A South Korean producer, however, had a slightly different opinion. He said it would be difficult for producers to increase PVC prices, as China would bring onstream another 1m tonne of new PVC capacity by mid-2005. ‘China’s import figures had fallen in 2004 and we are expecting China’s import figures to continue falling in 2005,’ said the South Korean producer.
The situation, however, was very different in Southeast Asia (SEA), where producers experienced an intense margin squeeze with the VCM cost hike. Most of them found it extremely difficult to pass on the increase in prices, as the region faced a surplus of PVC.
‘Many of the SEA producers are having difficulty increasing prices beyond the US$850-880/tonne cfr SEA level. With VCM costs at US$760/tonne cfr SEA or higher, most of the producers will end up with, at best, a US$20-30/tonne margin,’ said a chlor-alkali consultant.
The consultant added that it was likely that many of the PVC producers would suffer losses if VCM prices surged beyond the US$760/tonne cfr Asia range.
‘The PVC producers in SEA will also face another challenge. The VCM supply in SEA is extremely limited. So, other than worrying about price hikes, the producers may not even be able to get their VCM supply,’ he said.
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