OUTLOOK ’12: China PVC rebound to be slow despite tight supply

29 December 2011 03:19  [Source: ICIS news]

By Feliana Widjaja

SINGAPORE (ICIS)--China’s polyvinyl chloride (PVC) import prices are likely to rebound next year on the back of tight supply, but the gains may be undermined by weak downstream demand and a bearish global economy, industry sources said.

PVC prices in China began declining in mid-August and fell to an all-year low of $840-860/tonne (€647-662/tonne) CFR (cost & freight) China Main Port (CMP) on 4 November. That is 31% lower as compared with the 2011 peak of $1,220-1,250/tonne CFR CMP seen in late May, ICIS data showed.

The downtrend in prices was due to the high interest rate in China and the tightening of its monetary policy, which restricted end-users’ cash flow and weakened buying sentiment.

However, prices rose following an explosion at Japan’s Tosoh Corp’s 550,000 tonne/year No 2 vinyl chloride monomer (VCM) line at Nanyo in Yamagata prefecture on 13 November, to settle at  to $940-950/tonne CFR CMP on 23 December

VCM is the key feedstock for the production of PVC.

The producer later took all three of its VCM lines, which have a combined capacity of 1.2m tonnes/year, off line and Tosoh is not expected to restart the facility anytime soon.       

Taiyo Vinyl, a subsidiary of Tosoh Corp, was directly affected by the reduced feedstock VCM supply from its parent company and it is operating its 310,000 tonne/year PVC plant at Yokkaichi, 150,000 tonne/year PVC plant at Osaka and 100,000 tonne/year PVC plant at Chiba at reduced rates, a company source said.

Taiyo Vinyl is current relying on feedstock supply from Tosoh Corp’s 180,000 tonne/year VCM unit in Yokkaichi, which is operating normally, the source added.  

Taiyo Vinyl ceased its PVC export business following the accident, as it was unable to offer any export cargoes for December and January shipment, and is currently only able to supply to the domestic market.

This has led to the reduced availability of cargoes, market sources said.         

Market players said the recent rise in PVC prices was largely because of the tightened supply as well as high feedstock VCM prices, instead of actual demand as downstream consumption in China has been persistently weak.

VCM prices have been hovering at $750-800/tonne CFR northeast (NE) Asia since mid-November, according to ICIS.

“The PVC price increase is because of tight supply and a cost push because of high feedstock VCM prices,” a Japan-based producer said.

Looking ahead, market participants have different opinions on the outlook for the PVC market next year.

Some market participants are optimistic about an improvement in demand after the Lunar New Year holiday in late January and said that will bode well for prices.

“Prices will increase in February when market players come back after the holidays,” a China-based trader said.

Furthermore, some said the Chinese government is planning to loosen its monetary policy next year.

“If this is successful, demand will recover,” said a producer in Japan.

The prevailing tight supply situation is also expected to continue into the new year, market players said.

In addition to the reduced PVC supply from Japan because of the prolonged shutdown at Tosoh’s VCM lines, PVC producers in Thailand may cut their exports in order to support domestic reconstruction activities following the recent flooding, a Taiwan-based producer told ICIS.   

“Prices will be on an uptrend from January to March because supply is limited,” said a producer in Japan.

However, other market participants are doubtful about the likelihood of a strong rebound in PVC prices next year.

A trader in China said the tight supply stemming from Tosoh’s outage is not expected to have a major impact on PVC prices because demand is unlikely to recover next year, judging from the weak Chinese construction sector.

“Now the market structure has changed. Supply is no longer that important and we should pay more attention to demand,” the trader added.

PVC consumption is heavily influenced by the construction industry, which accounts for three quarters of demand.

China revealed in its five-year plan that it is scheduled to build 36m sets of affordable public apartments.

The Chinese government will complete construction of 10m sets in 2011 and 2012, respectively, while the remaining 16m sets will be completed during the next three years in 2013-2015 according to information released by the country’s National Development and Reform Committee (NDRC) in March this year.

However, industry sources said the Chinese government may reduce the target for 2012 to 8m sets, but that is yet to be officially confirmed.

Nonetheless, market sources said China will need to overcome the hurdle of financial pressure, before its housing projects can be realised.

Both the central and regional governments faced pressure for capital this year and that weighed down on financing in various regions, the sources added.

“The Chinese government’s five-year plan is just an announcement. It is far from the real picture,” said a trader in China.

Moreover, there are serious concerns about the eurozone debt crisis as well as weak US economy, which are expected to persist in the coming year.

The bearish global economy may dampen the buying interest for PVC as the US and Europe are big re-export markets for downstream Chinese manufacturers, industry sources said.

“In general, prices should be on an uptrend, but not so strong, because the economic situation is not stable,” said a trader in Japan.

($1 = €0.77)

For more on PVC and VCM, visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Feliana Widjaja

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