Polymers: PVC prices rollover in US but rising elsewhere

09 August 2010 00:00  [Source: ICB]

Increasing demand and tight supplies mean that PVC prices are increasing in most places, except the US, which has a feedstock advantage

Prices for polyvinyl chloride (PVC) have rolled over in the US but increased elsewhere - with the exception of Russia, where prices were assessed as marginally down - due to increasing dem-and and tightening availability.

In the US, inexpensive natural gas is resulting in cheap ethylene, and the general sentiment is that this is in turn helping keep PVC prices rolling over - but this ethylene advantage is so far only seen in the US.

Ethylene and chlorine are used to create vinyl chloride monomer (VCM), the feedstock for PVC.

Sellers said July contracts were largely settled flat to June levels, indicating that the market was headed for a rollover.

US spot PVC prices were steady at 53-58 cents/lb (40-44 euro cents), with contract pipe-grade PVC going for 71-73 cents/lb, and general purpose PVC contract prices assessed at 75-77 cents/lb.

Large buyers said July prices were flat to June, while small and medium pipe-grade buyers' settlement levels were less clear, but still indicated that a rollover was imminent.

PVC buyers and sellers said the US economy going into the second half of 2010 displayed more flat than rising characteristics.

The key housing and construction segments remained weak, according to PVC buyers and sellers. The construction segment has not shown signs of recovery, even when the summer months have been historically the most active for this sector.

Another critical factor for PVC buyers continued to be a tight credit market, according to sellers and buyers. PVC buyers are said to be holding minimal inventories owing to reluctance to extend credit and issues in securing credit to take on projects.

The export market has been supporting US producers. US exports of PVC in May - the last data available - jumped by 35% from April to 225,694 tonnes, led by increased shipments to Canada, Turkey, China and Egypt, the US International Trade Commission said in early July.

May exports were up by 19% from 189,569 tonnes in May 2009, with the year-on-year comparison helped by a big growth in shipments to Mexico after that country dropped anti-dumping duties on US PVC in October. But while May exports to Mexico were up by 78% from a year earlier to 12,634 tonnes, they were down by 3.1% from 13,038 tonnes in April.

For the January-May period, US PVC exports were roughly 1m tonnes, up by about 23% from 820,974 tonnes in the first five months of 2009.

Although Venezuela's Pequiven was considering purchasing 5,000 tonnes from different suppliers in Mexico and the US to cover Venezuela's requirements during a planned maintenance turnaround in August and September, in late July, Pequiven said it would import 2,600 tonnes of PVC from US producer Shintech to offer to domestic processors.

The good feedstock fortune of US PVC makers has not spread to the rest of North America, however, as Mexican PVC producers have announced price increases of $50/tonne for August amid higher spot values for feedstock ethylene.

In Europe, shorter supply and buoyant buying interest from one or two downstream sectors continued to exert upward pressure on PVC prices at the end of July, as UK values gained £10-15/tonne ($15.81-23.72, €12-18/tonne) for July business.

Tightness in the European market was exacerbated by BASF's declaration of force majeure on several plasticizers produced at the firm's Ludwigshafen, Germany, facility, some of which were integral for producing PVC. "Every month we are fighting to find material," one buyer said. "I've never faced such a difficult situation in the plasticizer market."

UK sellers mainly reported success at plus-£15/tonne on lower-priced contracts. Most noted that availability in the UK was becoming tighter because of upstream VCM production problems with producer INEOS Chlor-Vinyls, ongoing maintenance turnarounds at several producers and low output at traditional UK suppliers.

The short supply situation was made worse by a marked improvement in buying interest, despite the traditionally slower time of year, sellers mentioned.

While buyers agreed that the UK market was tightening, several said they had settled the majority of business at an increase of £10/tonne. One source said there was more flexibility in the market as a major supplier had stepped back from its non-negotiable policy in order to gain market share.

Elsewhere, there was further confirmation of the plus €15-20/tonne seen in Northwest Europe for July, although some producers continued to report settlements in excess of €30-40/tonne, citing the tight supply and good orders.

"It is the first time in a long time that PVC has increased above ethylene," a Mediterranean-based seller said in mid-July. "June was the best month of 2010 in terms of sales and July is already shaping up to be better - although, we are still far away from the level of demand we saw in 2008."

"We would ideally like plus €40-50/tonne in August," a ­German-based PVC producer said in late July. "Margins remain on a low level and we need to improve the situation. We see a chance to reach our targets in the next month and although it will depend on demand, we expect a good offtake [in Northwest Europe] through August."

Meanwhile, in Asia, PVC import prices into China the week ended July 30 were assessed $20/tonne higher at $890-920/tonne CFR China Main Port (CMP), reflecting improving demand and higher feedstock ethylene prices. And PVC export prices from northeast Asia producers were assessed $40/tonne higher at $900-950/tonne FOB Northeast Asia, even though demand was relatively stable in the region.

World demand for PVC amounted to around 33m tonnes in 2009, with a fall in demand in the NAFTA region, Europe and Japan, noted Jon Nash, director of strategic research for global consultancy Applied Market Information (AMI) Consulting.

There was an overall drop of 1-2% in 2009 after a fall of 6-7% in 2008. Growth was seen in Asia and is expected to continue in Asia and Latin America in the future, said AMI. Construction markets in developing countries are driving the increase in applications such as pipe and cable.

The close ties of PVC to the construction industry means that demand for PVC can be heavily cyclical, and the market for the product is fairly mature, noted Neil Tyler, analyst at JPMorgan.

According to global consultancy Chemical Market Associates Inc. (CMAI), PVC demand grew by a compounded annual growth rate (CAGR) of 0.8% from 2004-2009 while capacity grew by a much higher 6.6%.

PVC demand is estimated to grow by a CAGR of 6.6% until 2014, where capacity growth is estimated to grow only at 2.8%, helping to reduce oversupply, according to CMAI. Global capacity for 2009 is estimated at 44.1m tonnes, with operating rates estimated at 70%.

Consumption growth rates are highest in Middle East, at 10.3%/year, and the Indian subcontinent, at 9.5%/year, though on lower bases. Northeast Asia, particularly China, is expected to grow by 7%/year. Asia PVC prices were assessed by ICIS at higher by $10-40/tonne at the end of July.

PVC prices in Russia, however, were assessed marginally down. Construction is underway in Russia for the nation's largest PVC facility: RusVinyl, a 330,000 tonne/year plant that is projected to cost €650m.

"It is unlikely that further capacity additions will take place in the developed economies of North America and Western Europe due to high feedstock, energy costs and low profitability with further restructuring being likely," said Tyler. "New capacity is expected to come in Asia and the Middle East."

The PVC industry has been under close scrutiny in recent years, noted Tyler. "The manufacturing of both chlorine and VCM produces small quantities of toxic dioxins, which are believed to have a detrimental effect on human fertility and may be carcinogenic," he said. "Western Europe governments are planning to restrict PVC usage for some markets due to these concerns."

Additional reporting by Judith Taylor and Stephen Burns in Houston; Stephanie Wilson and Libby George in London; and Aaron Cheong in Singapore

By: Ivan Lerner
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