22 November 2012 16:22 [Source: ICB]
Demand for polyvinyl chloride (PVC) globally has grown by over 39% in the last decade, from 22-24m tonnes in 2000 to 33-34m tonnes in 2010. That year saw an improvement in PVC fortunes in the global market after two trying years of negative growth owing to the global financial crisis.
Dubai is still building, giving support to PVC demand
PVC demand growth in the Middle East in 2012 is said to be second only to that of the fastest growing developing economies in Asia-Pacific, but market players say that the pace of growth of PVC and capacity development in the region has traditionally been affected because of better opportunities in olefins.
Profits from PVC are comparatively lower because of a lower ethylene content in the product compared to polyethylene (PE) and polypropylene (PP) where abundance of raw material availability enables regional producers to realize better margins, explains one Dubai-based trader who regularly imports US-origin PVC into the region.
Recently, however, with the region's increasing interest in several large-scale infrastructure projects, PVC demand has grown faster than expectations, renewing the region's interest in the product.
The Middle East PVC market is said to hold greater potential than the global PVC trend. While most market participants expect 2013 to see a less dynamic pace in the construction industry, thus generating slower demand for PVC across the region, the latter half of the year holds promise as a potential "inflection point" as several infrastructure projects are likely to kick-off towards the end of the year.
According to the International Monetary Fund (IMF), Saudi Arabia's economy is predicted to grow by 4.0-4.4% in 2013. Though this is nowhere close to the 7-8% recorded prior to 2008, when set aside global economy growth of 3.9% forecast for 2013, it represents a reassuring picture.
The $131bn (€103bn) relief package announced in 2011 by King Abdullah Bin Abdulaziz Al Saud is said to have given an impetus to several initiatives in the construction, infrastructure and housing sectors in the country.
Oman, which has conventionally been considered a conservative economy, plans to increase its spending on new infrastructure projects by 10% in 2013. Multiple construction initiatives have already begun, such as the Oman rail project, as a consequence of the diversification policies under the country's Vision 2020 plan.
In the United Arab Emirates (UAE), two mega-sized projects, the Etihad railway project, scheduled for completion in 2014, and the Abu Dhabi airport expansion project, due for completion in 2017, are cited as potential growth drivers for PVC in the region.
Dubai in the UAE has launched an official bid to host the World Expo 2020, which, if accepted could launch a burst of construction activities, again boosting regional PVC demand.
With Kuwait still in the early stage of diversification, Qatar with an infrastructure budget of $85bn and Bahrain undergoing an infrastructure overhaul, the Middle East region is expected to see significant growth for PVC in the next three to five years.
The Middle East is predominantly an importer of PVC, sourcing over 50% of its requirements from the US. Regional production caters to about 25% of total demand, with supply from Asia making up the rest.
Consequently, suppliers and buyers alike choose to maintain a cautious approach, given the gloomy economic outlook. An uncertainty in the timely kick-off of several infrastructure projects has led to a near-term pessimistic outlook on the market.
Importers' PVC purchases are clouded by the trends in European and US economies. According to a Saudi Arabia-based converter, the Middle East economy cannot be looked at in isolation, but in line with other regions. "Europe is dull, both China and India are not doing too well on the manufacturing front, and the US taking longer to recover than expected, thereby affecting our decisions."
A need to consolidate their positions rather than aim for growth is seen to be a matter of priority for many buyers in the region. Consequently, importers believe that sound financial management and budgetary efficiency will differentiate companies that are able successfully to weather the crisis from those that do not.
"A sound balance sheet is the need of the hour," suggests an infrastructure major from the region.
Some regional players are hopeful of a softening of the sanctions imposed on Iran by the US following the American elections. "If with the US elections, we see some progress on the Iran sanctions front and these are softened/removed, we may see some active growth," says a converter based in Oman.
PVC faces an imminent threat from PE and PP because of their lower environmental implications. Additionally, substitute products like steel and concrete with better durability properties have lately made a foray into the pipes segment, a market where PVC has enjoyed dominance. However, with over 85% of construction applications still depending on PVC, growth of PVC across the region holds considerable promise.
Demand growth for PVC in the Middle East in the near-term is expected to be slow, and dominated by restraint as end-users continue to maintain a wary approach amidst the global uncertainty. Therefore, a spurt in demand in 2013 alone is far from likely.
"The PVC market in 2013 is likely to be in a recovery mode, recording a marginal growth of 1.0-1.5%, not more," says a regional trader based in the UAE. With infrastructure projects spread over the next three to five years, an upward trend in PVC is likely in the coming years, not 2013 alone.
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