OUTLOOK '09: Mid-East, S Asia PVC to see single-digit growth

30 December 2008 08:30  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Demand for polyvinyl choride (PVC) is likely to grow only in single digits in 2009 in both the Middle East and South Asia due to the global economic meltdown, a far cry from the bullish consumption trends seen in the past few years, suppliers and buyers said on Tuesday.

“The construction sector, which is the main driver of PVC demand, has begun to slow down, in tandem with slowing gross domestic product (GDP) growth, in all regions, and this will have a huge impact on PVC consumption,” said a Middle East converter.

The slowdown would have an impact on PVC prices, which have only recently begun to firm, after declining sharply from July to November.

“Prices are expected to be volatile in 2009, swinging up and down in tandem with the demand-supply dynamics being played out in the markets,” said an Indian PVC trader.

In the Middle East, where demand for PVC was estimated to have increased by 12-13% in 2007, and by 9-10% in 2008, a further significant decline is expected in 2009, said a Dubai-based trader.

“We have not felt the impact so much this year, but once the current construction projects are completed, we will definitely see infrastructure projects being delayed due to liquidity constraints and the economic slowdown,” he said.

Middle East consumption of PVC is estimated at around 1.4m tonnes/year in 2008, while capacity is a little over 700,000 tonnes/year, which leaves a shortfall of 700,000 tonnes/year met mostly by imports from Asia.

The 500,000 tonnes/year of expected additional capacity from Iran, due to come on-stream next year, will further reduce the domestic supply shortfall.

In India, PVC demand was flat during the period August-October, but began to pick up in November, said a PVC producer. “The reason demand is picking up is mainly thanks to the irrigation pipes segment, which is still going strong,” he said.

The construction sector, which had been the main driver of PVC demand in the past couple of years, has been on a decline, in line with the lower GDP growth projections for 2008-09 of 7% versus 9% the previous year, he added.

Last year’s strong demand led many Indian producers to directly import PVC cargoes from northeast and southeast Asia for the first time ever to meet customer requirements.

“However, after August this year, we haven’t imported any cargoes as demand was very sluggish until November, and we have sufficient inventories to meet our customer commitments until the end of the financial year,” said a second Indian producer.

Imports into India are likely to fall by about 15% in the financial year ending March 2009 from a year earlier due to slowing demand from the construction segment, producers said.

Earlier this year, producers had forecast that India’s imports of PVC in the current financial year would jump to 450,000 tonnes/year, from 350,000 tonnes/year last year.

However, these forecasts have been revised down significantly following the global financial crisis, and current projections are that India will end up importing around 300,000 tonnes/year in the current year.

PVC consumption was estimated at 1.4m tonnes in 2007-08, far exceeding India’s 1.1m tonne/year nameplate capacity. However, actual production was much lower due to outages and turnarounds.

On the supply side, Indian capacity will increase by 200,000 tonnes/year in the first half of 2009 when ChemPlast’s new plant starts up.

Demand is also expected to grow in single digit in Pakistan, whilst supply will be plentiful with the start-up of additional capacities turning the country into a net exporter, a supplier said.

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By: Prema Viswanathan
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