FocusSlowing China construction clouds Asia PVC outlook

29 June 2010 10:41  [Source: ICIS news]

By Aaron Cheong

SINGAPORE (ICIS news)--Asia’s demand for polyvinyl chloride (PVC) may weaken with prices likely to be under continued pressure, as construction activity in China slows down in line with its government's efforts to cool down an overheating property sector, industry sources said on Tuesday.

Spot PVC prices had headed south over the past three months to $850-870/tonne (€689-705/tonne) CFR (cost and freight) CMP (China Main Port) on 25 June, off 15.0-15.5% from early March, ICIS data showed.

PVC demand from China would just grow at 5%, barely half the expected 11% expansion of the economy this year, market sources said. PVC, which is used on making pipes, has a huge application in the housing and construction sectors.

China - the biggest market for PVC in Asia - had been significantly cutting back on its imports of the material in the first five months of the year. Its PVC imports slumped nearly half year on year to 491,112 tonnes in January to May 2010, based on data from China Customs.

Market players directly attributed the slump in imports demand to government measures introduced late last year to curb the sharp spike in property prices in China.

The measures included restrictions on pre-sales of property by developers, a halt on loans for purchases of third homes and an increase in the minimum mortgage rates and a tightening of financing requirement for second-home purchases.

China’s lending binge in 2009 that saw banks’ portfolio balloon to $1,400bn may have caused asset price inflation in the property market, analysts said.

“The domestic property market remained volatile as buyers and sellers [alike] are worried over new and potential government tightening measures,” said a market source.

Demand from home buyers may continue to soften over the rest of the year, industry sources said.

Property transactions in Beijing and Shanghai had slumped by about 70% month on month in May, while in the industrial city of Shenzhen, sales fell nearly 62%, according to the Shanghai Securities News.

Developers, meanwhile, had continued to delay home sales and project launches.

Elsewhere in Asia, the outlook for PVC was more upbeat, with demand growth likely to mirror the pace of economic growth, industry sources said.

In Indonesia, demand for PVC was expected to pick up with the end of the rainy season, said a local producer.

“The PVC demand growth for this year would, at the very least, be expected to be on par with GDP growth for 2010,” he added.


($1 = €0.81)

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By: Aaron Cheong

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