OUTLOOK '13: US, Lat Am PVC producers look to improve over 2012

21 December 2012 21:11  [Source: ICIS news]

Participants in Latin America and the US are projecting higher polyvinyl chloride (PVC) prices in January on rising demand amid snug regional supply, following the customary year-end destocking.

Latin American PVC prices rolled over in December from November, in the face of tightening availability of US product, according to sources. Meanwhile, US PVC contract prices were expected to roll over in December as well, according to sources.

Latin American prices were expected to remain steady through the end of December, even while demand weakens as participants throughout the production chain shave inventories to reduce tax exposure.

However, buyers in Latin America noted that US spot material for export was no longer available for December, while demand in the US continued on a gradual uptrend in line with the economic recovery.

Sources said that less material was available for export as US domestic consumption continues to rise.

Braskem’s PVC plant in Camacari is in full production after a maintenance shutdown last week. Resin stocks remain short, but are expected to return to normal in January, according to local sources.

Traditionally, however, demand is soft in the first quarter of the year, after the seasonal slowdown following the December holidays.

Earlier, industry participants had projected slacking demand in January, which would probably last until the Carnival holidays celebrated throughout most of South America. Business activity in Brazil slows down in the weeks leading up to Carnival and is at a standstill during the celebrations.

Participants throughout the production chain in Brazil this year are caught with particularly low stocks in December because of the power outage in late October. The blackout resulted in continuing technical issues which led to a maintenance shutdown at Braskem’s PVC plant in Camacari in late November.

With Braskem back in full production after the maintenance, PVC inventories are expected to return to normal in January, according to sources in Brazil. Consequently, consumers are planning to purchase more resin than usual in December and January to rebuild the depleted inventories.

While PVC producers in the Americas talk of higher prices in January on rising costs of feedstock vinyl chloride monomer (VCM), resin buyers’ responses focus on recent competitive Asian offers.

Also, PVC exports from the US and Mexico have suffered from the eurozone crisis and weak demand from China in the past few months.

Among US producers, only Georgia Gulf has proposed a price increase for January, at 3 cents/lb ($66/tonne, €50/tonne). However, resistance from buyers and the failure of other producers to follow Georgia Gulf's announcement might lead the company to rescind the initiative, according to market sources.

In the US, domestic demand for PVC is tied intrinsically to the homebuilding sector, which has shown increased strength in recent months following the housing bubble collapse in 2007-2008 which precipitated the worldwide recession and the slow recovery that followed.

The housing recovery went in fits and starts throughout 2012, with the US Department of Commerce saying on 19 December that new home construction fell by 3% in November from December to a seasonally adjusted annual rate of 861,000, off from the downwardly revised figure of 888,000. The downturn was focused in the critical single-family sector, considered the core of the residential building market.

However, the general trend in the latter part of the year showed increased housing starts and renewed confidence among homebuilders for 2013. In late November, the National Association of Home Builders (NAHB) said its housing market index jumped by 5 points in November from October to a reading of 46. That was the seventh consecutive monthly gain in the confidence gauge, and the highest mark seen since May 2006, just before the housing market began to collapse.

A PVC producer said it expects that trend to continue into 2013, particularly when the homebuilding season begins in earnest in the second quarter. While prices may not increase in January, increased demand (including from rebuilding efforts in the northeast in the aftermath of Hurricane Sandy) as well as rising feedstock costs likely will put pressure on PVC prices, the producer said.

Of course, any recovery in the homebuilding sector (and therefore the PVC market) will hinge in large part on the general economic picture, which is still far from certain. At year's end, US policymakers were still grappling with the so-called "fiscal cliff," an automatic set of spending and tax cuts that threatened to send the US back into recession. Moreover, troubles continue in the recession-plagued eurozone and growth was slowing in China, both export markets for US PVC.

But buyers were expected to continue to meet price initiatives with resistance, according to sources.

Spot and export prices PVC rose in the final weeks of 2012 on the back of limited availability because of a set of planned outages for maintenance and unplanned outages among several producers on the US Gulf coast. It was unclear whether that trend would continue into January.

Additional reporting by Ken Fountain


By: Ron Coifman
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