FocusAsia PVC sinks 32% to 18-month low

09 October 2008 06:23 [Source: ICIS news]

SINGAPORE (ICIS news)--Asia polyvinyl chloride (PVC) prices have plunged to their lowest in 18 months on the back of falling feedstock costs and thinning demand in the face of global economic woes, market sources said on Thursday.

The price of ethylene-based PVC imports into China was assessed last week at $890-900/tonne CFR (cost and freight) China Main Port (CMP), an almost 32% drop from the record high reached in July, according to global chemical market intelligence ICIS pricing.

October was also the first month this year when prices of monthly cargoes into China fell below $1,000/tonne CFR CMP. There currently appeared little chance of a sharp rebound anytime soon, traders and producers said.

“All the gloomy financial news from the US and Europe are affecting the mood in the vinyls market. Offer prices have obviously come down in recent weeks but we haven’t really seen a corresponding pick-up in buying interest,” a PVC producer said.

The ongoing financial turmoil, rooted in the US sub-prime crisis and now spreading to Europe, has impacted the Asia vinyls market in several ways, traders and producers said. For one, mounting fears that major economies worldwide might be spiralling towards a recession has sent crude oil prices—and in turn PVC feedstock costs—tumbling downwards.

“Ethylene prices were more than $1,700/tonne (CFR NE Asia) not too long ago but now it’s lower than $900/tonne. Buyers are thinking they might as well sit and wait for prices to drop further,” a PVC trader said.

Such bearish sentiment had been reinforced by an actual drop in demand for Asian PVC-based exports, producers noted.

While US demand has been declining since last year at the onset of its housing market slump, buying interest from Europe has also sagged in recent months under the weight of global economic worries, the sources noted.

“There are very few bright spots in the Asia PVC export market now. Besides the US and Europe, demand from the Middle East and Africa has also been affected because of the recent (Ramadan and Eid-Al-Fitr) holidays,” said another PVC producer.

Demand from Latin America has also been affected, in part because of the upheaval in the currency markets, producers noted. The Brazilian real for example has depreciated by around 17% against the US dollar since the start of the year, which makes US dollar-priced PVC imports relatively more expensive.

Governments and central banks worldwide have rolled out an array of rate cuts and rescue packages in a bid to stem the financial turmoil. PVC producers, in contrast, have said they could do little else besides lowering offer prices and cutting operating rates. PVC producers across China, Taiwan, Japan, Korea and Thailand were heard to have already slashed rates by 20-50%.

Prices of the comparatively cheaper carbide-based PVC in China, which some sources say acts as a price floor for the ethylene-based grade, might be bottoming out soon as high raw material costs and thinning demand force more suppliers out of business. This could help ease the downward pressure on Asia ethylene-based PVC values, traders and producers said.

A producer however noted that Asia might yet bear the full brunt of the ongoing financial turmoil, whose impact has so far been indirect. If foreign investors start pulling their funds out of Asia, the credit crunch now troubling companies in the US and Europe might take hold in the Asia, further stifling downstream demand, the producer said.

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By: Ng Hun Wei
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