OUTLOOK ’11: Asia PVC demand to be weak in first quarter of 2011

28 December 2010 07:05  [Source: ICIS news]

By Aaron Cheong

SINGAPORE (ICIS)--Asian polyvinyl chloride (PVC) prices are likely to soften further at the start of 2011 on the back of the seasonal lull in demand, market players said.

Asian PVC prices had surged to an eight-month high of $990-1,030/tonne (€752-783/tonne) CFR (cost & freight) CMP (China Main Port) before settling lower at $970-1,000/tonne CFR CMP on 24 December 2010.

With the seasonal year-end lull and long Lunar New Year holidays in early February 2011, buyers were expecting to defer their purchases until after the long holidays. As a result, demand for early 2011 PVC cargoes was expected to be weak, market players said.

In addition, with news that China had met its energy savings and emissions reduction targets in its five-year plan in 2010, market players believed that the power rationing policy would be relaxed or even stopped by the end of the year. If so, this would lead to increased chlor-alkali operating rates, resulting in an excess supply of PVC from China, further exerting downward pressure on PVC prices, sources said.

Already, Chinese carbide-based PVC prices had softened in the last few weeks on the back of rising domestic production after the power rationing policy was relaxed.

In addition, with the successful start-up of several new carbide- and ethylene-based PVC plants in 2010, market players were concerned that this would lead to excessive supply of PVC into the domestic market in 2011.

PVC capacity in China had grown by over 20% to 23m tonnes/year in 2010 from 18m tonnes/year in 2009, according to ICIS data.

Among the new PVC production units that had started up in China in 2010 were Hanwha Chemical’s 300,000 tonne/year unit in Ningbo, Xinjiang Huatai Heavy Chemical’s 360,000 tonne/year expansion in Xinjiang, Xinjiang Tianye Group’s 400,000 tonne/year expansion in Xinjiang and Shaanxi Beiyuan Chemical Industry Group’s 250,000 tonne/year expansion in Shaanxi.

PVC demand is largely correlated to the growth of the global economy, as more than 50% of all PVC applications are in the construction and housing industry. The demand for PVC is greatest in Asia, driven mainly by China and India, where the large populations and rapid economic growth continue to provide great potential for PVC consumption.

In China, recent property prices had remained stubbornly high, despite the measures imposed by the Chinese government in 2010 to cool the property market.

This was due to excessive speculation rather than real demand, market players said.

China had attempted to cool the market, with measures such as limiting loans for the purchase of a third property and raising the down payment for all property purchases to 30% from 20%.

Property prices in China had risen for the third straight month in November, according to the country's official data. This increase was fuelling expectations that further measures to slow down the economy could be possible in 2011, amid concerns of soaring inflation, market players said.

As a result, demand for PVC was expected to slow down in 2011, sources said. Already, China’s GDP growth for 2011 was moderated to 9.2% when compared with estimates of 10% for 2010, according to the World Bank.

“Given the slower GDP growth expected for next year [2011], PVC consumption will not rise as fast as the increase in capacity,” a Chinese trader said.

($1 = €0.76)

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By: Aaron Cheong

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