FocusSluggish demand tempers northeast Asia VCM price uptrend

25 April 2012 07:02  [Source: ICIS news]

By Feliana Widjaja

Sluggish demand tempers northeast Asia VCM price uptrendSINGAPORE (ICIS)--Vinyl chloride monomer (VCM) prices in northeast Asia may not see strong gains in the near term despite current tightness in supply, in view of persistently poor demand, market sources said on Wednesday.

Prices have largely hovered in the range of $850-880/tonne (€646-669/tonne) CFR (cost and freight) NE (northeast) Asia since 10 February, as buying sentiment was dampened by weak conditions in downstream polyvinyl chloride (PVC) sector in China – a key VCM market in Asia, they said.

In the week ended 20 April, VCM prices were assessed at $860-870/tonne CFR NE Asia, according to ICIS.

Tight supply caused by shutdown of Tosoh Corp’s 1.2m tonne/year VCM capacity in Nanyo, Japan, sent spot prices on a strong upward momentum for about three months from mid-November last year.

Prices spiked by $160/tonne from the year lows of $690-710/tonne CFR (cost and freight) NE (northeast) Asia on 11 November 2011 to $850-870/tonne CFR NE Asia on 10 February, before being locked in a tight range thereafter, ICIS data shows.

Tosoh, which is the biggest VCM exporter in Asia, had to shut its three VCM lines in Nanyo following an explosion at its 550,000 tonne/year No 2 line in November 2011, and the units have been down for more than five months now.

The company aims to restart its 250,000 tonne/year No 1 VCM line at the site in May and its 400,000 tonne/year No 3 VCM line in June.

“Although Tosoh will restart line 1 in May, it can only supply to the domestic market to reduce the VCM shortage,” a northeast Asian polyvinyl chloride (PVC) producer said.

Availability of spot VCM will remain restricted in the short term in the absence of Tosoh cargoes.

VCM is a feedstock used in the production of PVC, which is used in the manufacture of pipes and profiles, films and sheets, wire and cable coatings, as well as in automobile parts, among others.

PVC consumption is heavily influenced by the construction industry and thus it correlates closely with economic growth.

Some players doubt that tight supply will continue to be a strong driver for future price gains, as the reduced supply is somewhat offset by sluggish demand from China.

China’s manufacturing activity, as measured by the preliminary HSBC purchasing managers index (PMI), contracted for the sixth straight month in April amid weak exports and demand growth, UK-based banking firm HSBC said.

Its PMI rose to 49.1 in April, from 48.3 in March. A figure above 50 indicates an expansion while a figure below 50 represents a contraction. Although the figure for April is higher, easing concerns of a sharp growth slowdown, both output and demand growth remained at a slow pace, said Qu Hongbin, HSBC’s chief economist for China.

At present, negotiations for VCM are being stalled by a wide gap between buying and selling ideas, market sources said.

Although VCM inventory in China is lean, integrated PVC producers preferred to consume their own VCM productions to manufacture PVC and are shying away from imports.

Several PVC producers in the country have also resorted to cutting back on their production rates in view of lacklustre demand and high feedstock prices.

“We do not have too much VCM stock but we have no intention to buy spot cargoes,” a China-based PVC producer said.

“We will be losing money if we buy import VCM to produce PVC,” the producer added.

Considering domestic ethylene-based PVC prices, which stood at CNY6,900-7,300/tonne ($1,093-1,157/tonne) EXWH (ex-warehouse) in the week ended 20 April, acceptable VCM prices should be in the low-to-mid $800/tonne CFR NE Asia levels, market sources said.

Despite the slight increases in domestic PVC prices in recent weeks, they are not sufficient to keep up with high VCM prices, a VCM trader said.

Nonetheless, VCM producers in Japan are disinclined to lower their prices as their margins are being squeezed by the high cost of feedstock ethylene because of steep naphtha prices, market sources said.

“VCM producers are having a tough time because PVC demand in China is still bad and Chinese buyers cannot afford current VCM price level”, a Japan-based trader said. 

These producers may be forced to reduce their operating rates if the current situation prevails, another trader in Japan said.

($1 = €0.76 / $1 = CNY6.31)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Feliana Widjaja

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