OUTLOOK '08: Europe PVC fending off energy, C2

04 January 2008 14:13  [Source: ICIS news]

By Adal Rafiq

 

LONDON (ICIS news)--Energy and ethylene costs will remain the big issues for polyvinyl chloride (PVC) this year following what has been described as one of the best years for margins in 2007, market sources said.

 

Producers were looking to begin in bullish mode, eyeing increases of up to €60/tonne ($88/tonne) for January business, based on rising feedstock and energy costs.

 

The need to recoup the two quarters worth of ethylene hikes was now paramount and producers prepared to harden their resolve for quick increases, in the hope of setting the tone for the rest of the year.

 

“Oil is the floor under PVC pricing. The first salvo has already been seen in the massive [€78/tonne] increase of ethylene which reflected the instability of the crude markets,” said one PVC producer, who added this was about half of what the most bullish ethylene producers wanted, the source added.

 

The main issue for PVC makers therefore will be the recovery of such a dramatic rise in feedstock costs.

 

“This is a very thin margin market at the best of times,” said the producer, “and we are always just a step away from slowing production and waiting for things to improve.”

 

For others, the year ahead looked straightforward enough.

 

“If oil is high, PVC will stay high so long as the demand is there,” said one producer.

 

The effects on the Europe PVC sector of the housing crisis in the US was much debated through the second half of 2007.

 

“People have spoken of a German recession for as long as I have been in this industry. But the growth of PVC seems to lie in the east,” said one source.

 

Indeed, eastern Europe has provided a ready source of demand, as well as an increasing presence on the supply side.

 

“Growth in eastern Europe continues to chug along at double digit rates, even while there is so much nervousness in the northwest,” said one source.

 

On production, a raft of shutdowns on upstream vinyl chloride monomer (VCM) units from at least two producers in the second and third quarters could prove a major headache.

 

A build-up of inventories and swap arrangements were already being planned ahead of the outages, but shortages could be a distinct possibility. Some players also noted that VCM plants are notoriously prone to delays after turnarounds.

 

“This is analysis from the bottom of the trough. When you look around all you can see from here is the bottom, so things look very gloomy,” another source said.

 

“January will come, and the earth will carry on spinning,” he added.

 

($1 = €0.68)

By: Adal Rafiq
+44 20 8652 3214

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