INSIGHT: Mixed signals surface in elusive Latin American PVC market

07 June 2011 15:39  [Source: ICIS news]

By Ron Coifman

HOUSTON (ICIS)--The Latin American polyvinyl chloride (PVC) market has received mixed signals at the end of the second quarter, as buyers have restricted purchases on fears of a sudden price drop even as regional supply has tightened.

PVC supply in Latin America tightened on several fronts.

The 11 March earthquake and tsunami in Japan resulted in a dramatic reduction in Asian and global polymer supply, as Japanese production plants were damaged and energy supply was reduced to those still operating.

Market participants said significant volumes of PVC were being shipped from the US and Mexico to Asia to cover the lack of PVC exports from Japan. The effects of the March disaster continue to be felt globally.

Contributing to tight PVC availability in the region, a four-hour blackout in early February left large areas of Brazil in darkness. Production of upstream ethylene and ethylene dichloride (EDC) halted when Braskem’s Camacari cracker shut down.

Braskem said at the time it had sufficient EDC on hand to keep the Bahia PVC plant running, but at reduced rates, until the cracker came on stream. However, buyers noted ongoing tightness and delays in resin deliveries.

In addition, Braskem stopped operations at its chlor-alkali facility in Alagoas, Brazil, after a chlorine leak on 22 May and an accident during repairs a couple of days later.

Regional sources said Braskem would resume production in a few days, but no further details were available.

In the US, Georgia Gulf declared force majeure on PVC supply on 14 April because of production issues at its plant in Plaquemine, Louisiana. Georgia Gulf expects to be operational in June and to lift the force majeure in July.

PVC prices in Latin America had gradually risen from March and then held steady during the last days of May, while initiatives for June were slow in emerging, according to regional participants.

Market talk was unclear on price direction for June, with some participants suggesting price increases, others rollovers and still others weakening values, depending on country.

PVC prices had risen in early May throughout Latin America on snug supply and strong demand, and stayed flat the rest of the month. Venezuela was the exception, as PVC prices there have remained unchanged since February on government oversight.

PVC supply had eased by the end of the second quarter because of slowing demand, despite the production issues in Brazil and the US Gulf, sources said.

In Argentina, domestic pipe-grade PVC prices were assessed at $1,500-1,600/tonne delivered (DEL) at end-May, up from $1,290-1,410/tonne DEL at the beginning of 2011.

Minimum prices for domestic pipe-grade PVC in Brazil are assessed at $1,700/tonne DEL after a 6% increase was added in May. The floor price for PVC was assessed at $1,320/tonne DEL on 7 January. An 8% price increase proposed for June is under negotiation.

In Colombia, market talk suggested that PVC export prices are likely to roll over at $1,310-1,370/tonne DEL from May to June or decline slightly.

In Mexico, although no clear proposals had surfaced for June PVC, market talk suggested $50/tonne price increases for domestic sales, while export price ideas for June were steady from May.

Participants said resin demand in Mexico, though still adequate, had slowed recently amid easing availability.

In Venezuela, politics were the main driver behind PVC prices.

Participants said demand remained slow amid normal production rates from the local PVC producer, resulting in rising resin stocks.

Yet local PVC producer Pequiven has no plans to export resin, as had been suggested. It intends to hold on to resin inventories because of the government’s plans to increase construction of petro-houses - PVC-based low-cost housing - according to sources.

The low-cost petro-houses use PVC for wall panels, doors, window and door frames and extensive shelving, according to plans developed by the government of Venezuela. Venezuela has exported some petro-houses to Cuba, Guatemala, Bolivia and Nicaragua, but the number of houses built remains small.

With presidential elections to be held in 2012, the Venezuelan government intends to accelerate construction of petro-houses to ease the country’s housing deficit.

When compared in US dollars, Venezuelan PVC prices stand at around half the price of PVC in the rest of the Americas.

The PVC market outlook in early June remains elusive in Latin America, as participants look at moderate price changes in either direction or at a stable market this month, depending on country.

Plant operations and resin supply in Asia continue to improve, while production issues in the Americas are either resolved or near resolution.

So while pockets of tightness remain, participants project easing availability.

However, demand is dampened by high PVC prices and market uncertainty. Buyers continue to manage inventories and limit purchases amid expectations that PVC prices will soften in the near future.

By: Ron Coifman
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