OUTLOOK '13: Massive improvement not expected for Europe PVC

28 December 2012 11:27  [Source: ICIS news]

By Glynn Garlick

LONDON (ICIS)--Players in the European polyvinyl chloride (PVC) market are not expecting a massive improvement in 2013 compared with 2012.

The industry has been adversely affected by the weakness in the downstream construction sector, which accounts for more than 50% of PVC consumption.

Recovery has also been held back by government spending cuts and the eurozone debt crisis.

Opinions vary on whether 2013 will be worse than 2012. Southern Europe has been more adversely affected than northwest Europe in 2012, but growth in the powerhouse German economy is expected to slow in 2013, according to the Bundesbank.

One seller said: “It is very obvious for everybody that 2013 will not bring the relief people are waiting for.

“Building markets represent two-thirds of our sales, and the expectation is a further deterioration in 2013.”

However, a buyer said it believed the market would be more or less the same as in 2012.

“We really do not see any growth in our applications. However, the good news is we believe the… market will be in the same balance.”

Another producer said it believed 2013 was not going to be much better than 2012, but added that it thought the first half of the year would be slower, followed by a pick-up in the second half.

The producer added that weaker players in the market could struggle.

Sellers’ margins have been very tight in 2012, with producers caught between high upstream costs, and buyers pushing for lower prices because of weak downstream demand.

Price discussions have tended to centre on producers’ attempts to preserve or improve tight margins, and buyers’ efforts to achieve decreases because of weak demand.

Producers have cut their operating rates to match demand. Upstream chlorine utilisation rates were at 77.7% in November, compared with 80.6% in April, according to industry body Euro Chlor.

The lower utilisation rates have led to tightness in the European market for chlorine’s co-product, caustic soda. This has been putting upward pressure on caustic soda prices.

Chlor-alkali producers are looking to increase caustic soda contract prices in the first quarter of 2013. This is a time when PVC prices are weak because of the economy and the usual downturn during the winter.

The electrochemical unit (ECU) is the combined price/value of one tonne of chlorine and 1.1 tonnes of caustic soda. If the ECU is higher than the cost of the production, then the process is economically viable. So at a time of low PVC consumption, producers are looking for higher caustic soda prices in a tight market.  

Some end-users have said they expect to cut their PVC usage in the first quarter of 2013 if demand in their downstream applications does not pick up, putting further pressure on producers.

However, lower PVC operating rates have led some players to say that the market could quickly become tight if demand did pick up in 2013.

At the same time, it has been said that some consumers have not been destocking as much as expected in December as they expect PVC prices might climb in the first quarter, if feedstock ethylene costs rise on the back of higher crude oil prices.

($1 = €0.75)

By: Glynn Garlick

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