Price and market trends: Asia PVC to soften in near term on weak China demand

19 April 2013 09:21  [Source: ICB]

Buying ideas at $900-920/tonne CFR CMP are deemed unacceptable by sellers because of feedstock VCM prices

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 12 April.

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's) $70/tonne cut in offers for April lots on 25 March weighed heavily on the market.

Caution in China
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 were hovering at around $850/tonne in the previous 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 fail 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 that depends on imported VCM as feedstock.

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

Ideally, PVC requires a price spread of $120-130/tonne to VCM values for 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; any improvements in demand which might lead to price increase are not expected," said a source at an Asian producer.

Buying ideas are quoted at $900-920/tonne CFR CMP, but sellers deem these levels unacceptable given the price 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 rangeor else there will be no meaning in operating our PVC units," said a producer.

By: Jasmine Khoo
+65 6780 4359

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