OUTLOOK '10: Asian PVC prices to remain firm on feedstock costs

30 December 2009 03:20  [Source: ICIS news]

By Ng Hun Wei

SINGAPORE (ICIS news)--Asian polyvinyl chloride (PVC) prices are likely to remain firm at the start of next year due to high feedstock costs despite a seasonal lull in demand, markets players said on Wednesday.

Asian PVC prices have increased by around 7.6% in the past two months to $900-940/tonne (€630-658/tonne) CFR (cost and freight) China Main Port (CMP) even though a harsh winter in the key Chinese market had weakened PVC demand.

Ethylene, derived from crude oil, is used to produce ethylene dichloride (EDC). EDC is used to produce vinyl chloride monomer (VCM), which is polymerised to form PVC.

"Ethylene is the main culprit here. For the past months, it did not matter whether crude prices had softened or not. Ethylene prices remained stubbornly high," an Asian PVC producer said.

Ethylene prices registered a 15-month high of $1,160-1,200/tonne CFR NE Asia this month due to a combination of tight supply and strong demand from downstream sectors. EDC prices increased to $450-480/tonne CFR NE Asia while VCM producers offered January cargoes at $800/tonne, compared to conclusion levels of $720-730/tonne in the previous month.

The trend appeared set to continue, market players said. Asian ethylene spot prices were set to mark fresh highs in 2010 due to persistent supply tightness and a heavy cracker turnaround schedule in the region.

Another Asian PVC producer said: "Because of the high costs, PVC producers will have to either raise prices or cut their operating rates. There is no other option." However, the producer acknowledged that a price increase was likely to be limited as demand would remain weak until February, after the week-long Lunar New Year holidays in China due to start in the middle of February.

Crude and ethylene prices plunged to a multi-year low due to the financial crisis last year, allowing ethylene-based PVC to gain a cost advantage over the carbide-based grade. More than 70% of Chinese PVC producers are carbide-based while all other PVC producers in northeast Asia are ethylene-based.

China, despite having the world’s largest PVC production capacity, recorded a surge in ethylene-based PVC imports in 2009 due to falling ethylene prices while the country’s domestic PVC market struggled with low operating rates. China had imported around 1.2m tonnes by June 2009, exceeding the 1m tonne imported for the whole of 2008.

China’s carbide-based PVC producers were competing ethylene-based PVC producers on costs due to high ethylene prices, traders and producers said. The import surge in the first half of 2009 was unlikely to be repeated in the next six months, they added.

"We have even reduced rates at our ethylene-based PVC plant and instead increased production at our carbide-based PVC plant. There’s little reason why Chinese domestic buyers will find PVC imports attractive at the moment," a Chinese PVC producer said.

China’s PVC imports have steadily decreased in the second-half of 2009. The country imported only 60,646 tonnes of PVC in November, the lowest volume registered in last 12 months, according to the data from the China Customs.

High feedstock costs and poor demand would present a tough business environment for PVC producers in 2010, but market players said they were hoping the upward pressure on ethylene prices would ease as many new crackers in the Middle East and Asia would be up and running before the end of the first quarter of next year.

($1 = €0.70)

For more on EDC, VCM and PVC visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
To discuss issues facing the chemical industry go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Ng Hun Wei
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