FocusChina PVC to halt fall on better demand, firm feedstock costs

20 July 2011 08:50  [Source: ICIS news]

By Feliana Widjaja

SINGAPORE (ICIS)--Polyvinyl chloride (PVC) prices in China are unlikely to slide further in the near term in light of firming feedstock prices and a likely pick up in demand with the onset of the production season through September, market sources said on Wednesday.

Spot prices of PVC reached their peak at $1,220-1,250/tonne (€866-888/tonne) CFR (cost & freight) CMP (China Main Port) in May and were last assessed at $1,070-1,090/tonne CFR CMP on 15 July 2011, according to ICIS data.

Prices in the spot market have plunged to the current level amid sluggish demand in China, market sources said.

Power restrictions in several regions in east China have dampened demand as a number of downstream factories have reduced their operation rates, with some smaller plants even shutting their operations, market sources said.

As a result, some market participants do not expect to see a significant improvement in demand until September.

In addition, a deluge of competitively priced US cargoes into the country has placed further downwards pressure on prices, according to market sources.

“We have no choice but to reduce our prices in order to compete with the cheap US cargoes,” an Asian producer said. Offers for US cargoes for August shipments were heard at $1,040/tonne CFR CMP.   

The country’s high interest rates and its tightened monetary policy also continue to weigh heavily on buying sentiment.

“The tight monetary policy is restricting buyers’ cash flow and as a result they are not in a position to buy,” a trader said.

China’s central bank announced on 6 July that it will raise financial institutions’ interest rates by 25 basis points, which will bring up the benchmark interest rate for one-year lending and deposits to 6.56% and 3.5% respectively.

This is the third time in the year that the country has raised interest rates in its bid to curb inflation.

Opinions are mixed on when the PVC market will emerge from its current slump.

End-users are adopting a cautious stance amid the uncertainties in crude oil price direction, the weak US economy and the eurozone debt crisis, as well the possibility of further monetary tightening in China, market sources said.  

However, several producers and traders feel that a recovery is imminent and that PVC prices have bottomed out as feedstock ethylene prices are on the rise. Spot prices of ethylene recovered slightly to $1,120-1,150/tonne CFR NE Asia on 15 July 2011, after hovering at a seven-month low of $1,100-1,130/tonne CFR NE Asia in the middle of June, according to ICIS data.  

On 20 July, Taiwan's Formosa Plastics announced its benchmark PVC offer for August into China at $1,120/tonne CFR CMP, a $10/tonne increase from its July offer at $1,110/tonne CFR CMP. This further bolstered the sentiment that PVC prices are on the cusp of an upturn, albeit a slow one, market sources said.

The sharp rebound in polyethylene (PE) and polypropylene (PP) prices in China since the second week of July should also provide some support to PVC prices and points to the likelihood of a recovery sooner or later, according to market sources.

“[Prices in the] PVC market usually lag behind the PE and PP market by around two weeks. Since [the prices of] PE and PP have rebounded, it’s a matter of time before PVC follows suit,” a producer based in southeast Asia said.

Several market players are projecting a recovery in PVC prices in August as they feel that seasonal demand will set in sooner or later.

“The traditional peak [production] season from July to September seems to be delayed this year but buyers will have to purchase PVC eventually,” a trader in northeast Asia said. These downstream factories have to procure August or September cargoes to manufacture finished goods for re-export to the US in time for Christmas, he added.   

Meanwhile, the supply of PVC in Japan has recovered as several major producers have resumed operations at plants in Chiba and Kashima that suffered severe damage during the earthquake on 11 March, market sources said.

However, export volume from the country still remains limited as local producers are focusing on supplying Japan's domestic market.

Japan exported a total of 55,294 tonnes of PVC in February, which dipped to 41,553 tonnes in March, before declining further to 27,324 tonnes in April and 26,027 tonnes in May, according to trade statistics from Japan's Ministry of Finance.

Japan exports roughly 60% of its total PVC volume to China.

Still on the export front, producers in China were said to have limited interest currently as export prices are even lower than domestic values.

Export prices were last assessed by ICIS at $1,080-1,090/tonne FOB (free on board) CMP for carbide-based PVC on 15 July, while ethylene-based PVC prices were at $1,100-1,120/tonne FOB CMP on the same date.

In contrast, spot prices of carbide-based and ethylene-based PVC in east China were at yuan (CNY) 7,750-7,800/tonne ($1,200-1,207/tonne) EXWH (ex-warehouse) and CNY8,200-8,750/tonne EXWH, respectively.

“This is not a good time to export, we have stopped exporting since June,” a producer in China said, adding that most producers are only catering to domestic demand for the time being.

($1 = €0.71, CNY6.46)

For more on PVC, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Feliana Widjaja

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