FocusAsia PVC to soften in near term on weak China demand

12 April 2013 08:51  [Source: ICIS news]

By Jasmine Khoo

SINGAPORE (ICIS)--Spot polyvinyl chloride (PVC) prices in Asia may still soften in the weeks ahead on sluggish demand in the key market China, but downward pressure will be tempered by firm values of feedstock vinyl chloride monomer (VCM), industry sources said on Friday.

On 5 April, PVC prices were assessed at an average of $995/tonne (€756/tonne) CFR (cost and freight) China Main Port (CMP), down by 7% from 1 March, according to ICIS data.

Taiwanese PVC major Formosa Plastics Corp’s (FPC) $70/tonne cut in offers for April lots on 25 March weighed heavily on the market.

Chinese buyers, expecting prices to fall further, have adopted a cautious stance and are buying cargoes when there is an immediate need, market players said.

Feedstock VCM prices are hovering at around $850/tonne in the past two weeks, largely supported by tight regional supply following the decommissioning of a 400,000 tonne/year facility at the start of the year.
The decommissioned plant was operated by Vinyl Chloride (Malaysia) Sdn Bhd (VCM SB), a subsidiary of Malaysian state-owned PETRONAS.

Some market players raised concerns that the weakness in PVC prices could also drag down VCM values, in spite of the tight VCM supply in the region.

Other producers with stand-alone PVC units may face problems sustaining production should VCM prices remain firm and the prices of their products failed to improve, market sources said.

“It is difficult for PVC prices to go up any more, but that is manageable if feedstock [VCM] prices go down too,” said a source at a regional PVC maker, which depends on imported VCM as feedstock for PVC production.

“If VCM prices remain high, but PVC [prices] go down, then there is no meaning in operating our plant,” the source said.

Ideally, PVC should maintain a price spread of $120-130/tonne to VCM values for PVC producers to generate margins. For some PVC producers, a price gap of $100/tonne is still acceptable, industry sources said.

But PVC prices are unlikely to increase in the near term, while VCM prices are firmly supported by tight supply, they said.

“End-users [of PVC are] being so cautious with buying cargoes for now [that] any improvements in demand which might lead to price increase are not expected,” said a source at a northeast Asian producer.

Buying ideas being quoted at $900-920/tonne CFR CMP, but sellers deem these unacceptable considering the current prices of VCM.

“If VCM is around the mid-$800s/tonne range, there is no reason for prices of PVC to decline below $960-970/tonne CFR CMP range…or else there will be no meaning in operating our PVC units,” said a northeast Asian-based producer.

Some market players appear ready to take their cue from Taiwanese major FPC, which is widely expected to announce its May offers next week, in the absence of a clear price trend. “It is better to wait and see what FPC will announce for May-loading cargoes. In the meantime, trading activity should most probably remain subdued,” a northeast Asia-based seller said.

($1 = €0.76)

By: Jasmine Khoo
+65 6780 4359

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