FocusChina PVC gains on restocking; strong rebound uncertain

12 July 2012 07:19  [Source: ICIS news]

By Feliana Widjaja

SINGAPORE (ICIS)--Import prices of polyvinyl chloride (PVC) in China have started to move up this week as buyers replenish stocks, with major regional producer Formosa Plastics Corp (FPC) raising its August offers by $50/tonne (€41/tonne), market sources said Thursday.

But it remains to be seen whether there can be a robust recovery moving forward, they said.

Taiwan’s FPC has raised its August benchmark PVC offers to $920/tonne CFR (cost & freight) CMP (China Main Port) and $940/tonne CFR India from July.

Its August export offers to deep-sea markets, like the Middle East, were also increased by $50/tonne to $870/tonne FOB (free on board) Taiwan.

Spot PVC prices in Asia have stayed at the year’s low of $850-870/tonne CFR CMP for two weeks from 22 June, after shedding 18% within a span of two months because of sluggish demand in China and lacklustre re-exports market in the US and Europe. Prices were last seen at these levels in the first half of November 2011, according to ICIS.

Prices were deemed to have bottomed out for July shipments, as buyers that have delayed purchases for some time have started coming back into the market to replenish their lean inventory levels, market sources said.

“Customers in China were in a hurry to purchase at the bottom price because of low inventory,” said a Japan-based trader.

Furthermore, prices of feedstock ethylene were on the rise and crude futures have largely rebounded, providing support to PVC values, market sources said.

At noon, US crude was trading at around $86/bbl, while ethylene prices were at $1,040-1,060/tonne CFR NE (northeast) Asia.

“Crude oil and ethylene prices have gone up and customers are also thinking that now is the bottom price so they try to take in more cargoes,” a producer in northeast Asia said.

But some participants in the PVC market doubt that product prices will stage a strong rebound as fundamental demand in China remained feeble and the macroeconomic environment is uncertain.

“Demand itself is still weak so prices may potentially come down again,” a China-based trader said.

Export orders for PVC end-users’ products remain low as the major re-export markets in the US and Europe have yet to find a strong economic ground. The eurozone is still struggling with its debt crisis, while the US economy is still in a fragile state.

Major PVC pipes and profiles producers were operating at 60% of capacity, while small/medium-sized downstream producers were running their plants at lower rates, market sources said.

The end-users’ market outlook remained bearish, with procurement of PVC raw material being done in small volumes to cover immediate needs, they said.

This sentiment is reflected in the cumulative import volume of suspension PVC in China from January to May 2012 that totalled 408,800 tonnes, a 13% drop from the previous year’s figure at 470,500 tonnes, China Customs data showed.

Furthermore, China's Purchasing Managers Index (PMI) fell to a seven-month low of 50.2% in June, registering a 0.2 percentage-point drop from May, according to the China Federation of Logistics & Purchasing.

This indicates that manufacturing activities continued to weaken, with a further slowdown expected in the next two months as external demand remains poor, analysts said.

China cut its bank lending rate twice this year by a total of 59 basis points (bps) – 31bps in July and 28bps in June – to boost domestic consumption amid a substantial weakening in external demand.

A continuous deceleration in inflation rate provides China with the flexibility to loosen its monetary policy. Its inflation was at a 29-month low of 2.2% in June.

“The economic outlook in China is still fuzzy so PVC recovery in the long-term is unclear,” another producer in northeast Asia said.

($1 = €0.82)

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

By: Feliana Widjaja

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly