Weak Europe PVC demand hits Arkema's vinyl products Q3 results

09 November 2011 15:05  [Source: ICIS news]

LONDON (ICIS)--Depressed conditions in the European construction industry, which accounts for more than 50% of PVC consumption in the region, hit Arkema’s vinyl products third-quarter results, the French specialty chemicals company said on Wednesday.

The company’s sales of vinyl products, which represent 15% of its total sales, reached €278m ($386m), compared with €284m in the third quarter of 2010, according to the company’s third-quarter results.

The divestment of its PVC pipes business in France, finalised by Arkema subsidiary Alphacan, resulted in an €11m decrease in sales, the company said.

Sales volumes were down on the previous year because the negative sentiment in the downstream infrastructure and construction industries is leading to plummeting consumption levels in the European PVC market, the company said. 

While PVC buyers are reducing inventories and orders in anticipation of falling prices, producers are cutting operating rates in an effort to stabilise the market and prevent further price decreases.

Conditions vary across Europe, with southern European countries such as Spain, Portugal and Italy said to be suffering poorer demand than elsewhere.

However, contract pricing developments in October in the northwest European market show this region is not in better shape. Major producers have reported decreases of up to €35/tonne for October because of slow demand and ample supply, despite having announced flat prices at the beginning of October.

So far, the €20/tonne decrease in November ethylene contracts has offered little chance of recovering margins as major PVC producers in the Mediterranean and northwest Europe are already expecting decreases because of flat demand and the beginning of the destocking cycle.

In this environment, it comes as no surprise that Arkema’s PVC unit margins are low, while earnings before interest, tax, depreciation and amortisation (EBITDA) remain at break-even.

There seems to be little cause for optimism for the European PVC market as the traditionally strong months of September and October have seen little pick-up in demand, while December and January are usually weak.

Arkema’s fourth-quarter vinyl products results are expected to be affected by the strike-related shutdown at the LyondellBasell refinery and petrochemicals unit at Berre L’Etang in France at the beginning of the quarter.

The shutdown prevented the distribution of PVC and caustic soda from Arkema’s facilities, obliging the company to declare force majeure on caustic soda at its plant in Fos, southern France, and its PVC plant in nearby Berre L’Etang. 

Arkema lifted force majeure on PVC on 12 October and on caustic soda on 14 October.

Qatar Vinyl Company, in which Arkema has a 13% shareholding, again reported an excellent performance, with a contribution of €4.5m to net income.

($1 = €0.72)

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By: Abache Abreu
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