OUTLOOK '12: Prompt recovery for Europe PVC market in 2012 unlikely

03 January 2012 11:09  [Source: ICIS news]

By Abache Abreu

LONDON (ICIS)--There is little hope of a prompt recovery in demand for European polyvinyl chloride (PVC) next year, as growth in the key downstream construction industry, which accounts for more than 50% of PVC consumption, is unlikely to rise above pre-crisis levels until at least 2013.

Producers have reduced PVC stocks over the past months by cutting operating rates, some by even 70-80%, but this has not been enough to offset extremely low levels of demand, as stocks remain high and the market is long.

“I don’t expect a sudden recovery in demand [in January] but inventory management has been very strict,” a supplier said. "Producers have kept stock levels low and recent unplanned shutdowns have limited availability," it added.

PVC producers are also talking about potential increases in January contract prices in order to ease pressure on margins, after reportedly seeing signs of a recovery in buying interest for January orders. However, this has come largely from customers wanting to benefit from next year's bonus and discounts for large quantities.

Buyers, on the other hand, seem reluctant to accept any price increases in January because of poor market fundamentals. “It's reasonable to expect producers to aim for price increases, but I’d be very surprised if the market was ready for that, as demand is usually low after Christmas,” a buyer said.

“Producers are hoping that the destocking cycle will reach a bottom end and that in January players will be back into the market place searching for material," another buyer said.

“However, this is what we heard in August, when producers said September was going to be a good month and it never happened," it added.

In general, little improvement is expected early next year, with most players anticipating depressed market conditions throughout the first quarter of 2012.

Conditions vary across Europe, with southern European countries said to be suffering poorer demand than elsewhere in the region, as concerns over the eurozone debt crisis, coupled with the long-lasting consequences of the housing bubble, have continued to dull downstream market activity.

The export market has offered producers little opportunity to offset low domestic demand: Softer feedstock and energy prices in Asia and the US, currency exchange volatility and uncertainty in the global economies, have continued to limit export trade beyond the Mediterranean market, including the Middle East and northern African countries.

"The key question is what is going to happen with the export market," a supplier said.

Several producers emphasise that this time around, only the European economy seems to be heading towards recession. However, economic growth has already started to slump in other key emerging markets and this is not only limiting export opportunities for European producers but also encouraging imports into the continent.

One producer said: “The export situation is playing a key role. US and Asian ethylene is much cheaper than Europe and this is why there is product arriving in the Mediterranean".

Competitively-priced imports from China and the US are being placed in the European contract market and this is narrowing the gap between contract and spot prices, the producer added.

“You normally have imports, but now there is more material from importers from these regions than from northwest European producers,” it said.

In conclusion, there is no room for optimism in the European PVC market as the annual market trend of 2011 points to a fall in construction activity, while escalating problems in the eurozone continue to hurt the global economy, leading to tight credit conditions, frail consumer confidence and low levels of investment.

For more on PVC visit ICIS chemical intelligence
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By: Abache Abreu
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