FocusAsia PVC to extend gains on tight supply, high feedstock costs

05 September 2012 07:21  [Source: ICIS news]

By Feliana Widjaja

SINGAPORE (ICIS)--Polyvinyl chloride (PVC) prices in Asia may strengthen further in the near term, driven by restricted cargo availability and escalating prices of feedstock ethylene, industry sources said on Wednesday.

Spot PVC import prices in China hit a two-month high of $990-1,000/tonne (€792-800/tonne) CFR (cost & freight) CMP (China Main Port) on 31 August, up by $130-140/tonne or about 16% from 6 July, according to ICIS data.

Over the same period, feedstock ethylene gained 26% to $1,300-1,350/tonne CFR northeast (NE) Asia, ICIS data showed.

Majority of market participants in the PVC market are expecting October offers, which are likely to be released in the coming weeks, to be higher amid a feedstock cost push and continued tightness in supply.

“The PVC price trend is still upward because supply is tight and ethylene is extremely high,” a northeast Asia-based producer said.

Buying activities started to pick up in July as PVC prices were deemed to have bottomed out. Restocking activities among buyers who needed to replenish their low inventory levels boosted prices, market sources said.

China, which is a major PVC importer in Asia, took in 26.8% more of the material in July at 81,400 tonnes, from June’s import volume of 64,200 tonnes, official data showed.

Nonetheless, fundamental demand in China is said to remain sluggish as export orders of end-users’ products were perpetually slow in view of the eurozone debt crisis, as well as the unstable US economy. Europe and the US are major markets for re-exports of PVC finished goods from China, market sources said.

Manufacturing activities in China are weakening as indicated by its Purchasing Managers Index (PMI), which dropped to a nine-month low of 49.2% in August, mainly dragged down by weak external demand.

A reading below 50% indicates a contraction in manufacturing output.

China’s weak property sector also contributed to lacklustre demand for PVC, given that the material is largely consumed in the construction sector, industry sources said.

Despite the less-than-rosy downstream demand outlook, buyers have to accept higher PVC prices in the absence of lower-priced cargoes in the market, industry sources said.

“September prices increased sharply from August because of tight supply and not because of real demand,” a China-based trader said.

In southeast Asia, PVC prices were at $1,000-1,020/tonne CFR SE (southeast) Asia on 31 August, up by 17% from levels seen on 6 July, according to ICIS.    

Stand-alone PVC producers in southeast Asia were said to be facing mounting cost pressure on the back of steep prices of feedstock vinyl chloride monomer (VCM), industry sources said.  

“We are looking at breakeven cost condition now. The margin is very thin,” a PVC producer in southeast Asia said.

Furthermore, short VCM supply in the region is causing some PVC manufacturers to operate at reduced rates, market sources said.

“Everybody is affected by VCM. The raw material is more expensive than the product [PVC],” another PVC producer in southeast Asia said.

VCM prices were last assessed at $850-870/tonne CFR SE Asia on 31 August, gaining $90-100/tonne or 12% in a span of six weeks from $750-780/tonne CFR SE Asia on 20 July.

Considering current VCM prices, PVC converters can still make a profit for domestic sales but the margin for exports is very narrow, according to a southeast Asia-based PVC producer.

As a result, many PVC producers in the region preferred to sell to their respective domestic markets to generate better netbacks, thus limiting exports.

Lower availability of spot cargoes for exports is exerting upward pressure on international PVC prices.

“Supply is tight, therefore buying activity is good. I am optimistic that price[s] will go up,” a third southeast Asia producer said.

($1 = €0.80)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
Request a free ICIS sample report for the latest prices and development in the Asian petrochemical markets

By: Feliana Widjaja
+65 6780 4327

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