FocusAsia PVC to soften after 9% feedstock VCM-led price spike

07 March 2013 04:40  [Source: ICIS news]

By Jasmine Khoo

Asia PVC to soften after 9% feedstock VCM-led spikeSINGAPORE (ICIS)--Spot polyvinyl chloride (PVC) values in Asia are expected to fall in the near term as buyers deem the feedstock cost-driven 9% price spike since the start of the year as overdone, industry sources said on Thursday.

In the week ended 1 March, PVC prices were assessed at an average of $1,075/tonne (€828/tonne) CFR (cost and freight) CMP (China Main Port), up by $90/tonne from 4 January, according to ICIS data.

Supply of feedstock vinyl chloride monomer (VCM) is critically short following the decommissioning of a 400,000 tonne/year plant in Malaysia, marking the exit of PETRONAS-owned Vinyl Chloride (Malaysia) from the market.

VCM prices have shot up by about 13% from the start of the year to $920-950/tonne CFR NE (northeast) Asia on 1 March, ICIS data showed.

PVC supply is also tight, with no March-loading cargoes flowing into Asia from the US, which is suffering from a domestic shortage of the material. However, most market participants are convinced that PVC prices have peaked and some producers were heard to have reduced their initial offers to stimulate buying interest.

On 20 February, Taiwan’s Formosa Plastics Corp (FPC) announced its PVC offers for March-loading cargoes at $1,090/tonne CFR China Main Port (CMP) – a $70/tonne increase from its February-loading prices – leading other producers to follow suit in hiking offers.

But poor acceptance of the current PVC offers meant the gains will need  to ground to a halt, industry sources said.

“The ones buying the [FPC] cargoes are mainly the traders...most buyers were very hesitant to buy at this price level. They want to wait and see. But this price is really too much,” a PVC producer said.

At the recently concluded 7th International Chlor-alkali and Vinyls conference in Vietnam's Ho Chi Minh city on 5-6 March, market participants are generally expecting PVC prices to weaken but not by much since VCM values remain firm.

“Prices should start to fall. We don’t think there will be a sharp decrease because VCM is still very high. A margin [between VCM and PVC prices] of around $130-150/tonne is ideal, but $100/tonne is the bare minimum,” said another producer.

Based on the last assessed average prices of PVC and VCM, the spread stands at $150/tonne.

“We are just worried that following a significant price increase, buyers will start to hesitate and stop buying,” said another regional PVC producer.

If high VCM prices continued to squeeze PVC margins, PVC producers “might as well stop production”, said a southeast Asian PVC producer.

Participants at the two-day industry conference cited unequal margins along the vinyls chain, amid a sluggish caustic soda market; an illiquid ethylene dichloride (EDC) market; and further downstream – ‘unpredictable and uncontrollable’ VCM and PVC markets.

In the VCM market, however, prices are not showing signs of easing because of a severe shortage of spot cargoes for March-loading, and this will lend firm support to PVC values, industry sources said.

Some northeast Asian producers are offering their limited VCM lots at $950/tonne FOB (free on board) NE (northeast) Asia, which is equivalent to more than $1,000/tonne CFR southeast (SE) Asia after taking into account freight cost.

VCM prices at around $960/tonne CFR SE Asia are weighing too heavily on the profit margins for PVC production in the region, industry sources said.

“Prices of VCM are high, yes, but are there really deals to reflect it? There are so few spot cargoes out there. Most of the price increase was by the sellers, who have hardly any spot lots in their inventories,” a regional market participant said.

Buyers are now more hesitant to procure VCM at high cost given expectations that PVC prices will either flatten out or fall soon.

Rising ocean freight – borne of lack of vessels and port congestion after the Lunar New Year holiday in China that is compounded by poor weather conditions – is also an issue in the VCM and PVC markets, industry sources said.

A northeast Asia-based VCM producer had withdrawn its offer for March-loading cargoes to southeast Asia the previous week as the price would go well beyond $1,000/tonne CFR SE Asia, which is deemed unacceptable to buyers in the region. The cargo was subsequently offered to China, where freight cost would be lower.

“We cannot accept anything above $960/tonne CFR SE Asia. We will be making a direct loss,” said an industry source, who uses the southeast Asian price as reference for the Indian market.

($1 = €0.77)

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

By: Jasmine Khoo
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