FocusAsia's PVC prices to soften further following eight-week decline

30 April 2013 04:09  [Source: ICIS news]

By Jasmine KhooAsia PVC to soften after 9% feedstock VCM-led spike

SINGAPORE (ICIS)--Asia’s polyvinyl chloride (PVC) prices are poised to soften further in the near term following a steady decline for the past eight weeks on the back of weak market sentiment and ample supply, said market participants.

Following the announcement of the official prices for May-loading PVC cargoes by major Taiwanese producer, Formosa Plastics Corp (FPC), most market participants said that there is room for the PVC prices to soften further as the response towards the May prices was lukewarm.

Steadily falling buying ideas further reinforced this observation, and led the bulk of the market to believe that PVC prices would decline further, added some market participants.

According to ICIS data, PVC prices have weakened progressively from 1 March when prices were at an average of $1,075/tonne (€828/tonne) CFR (cost & freight) CMP (China Main Port) to an average of $960/tonne CFR CMP as of 26 April.

Meanwhile, FPC’s offers for its May-loading lots, announced on 22 April, were at $970/tonne CFR CMP, $970/tonne CFR SE (southeast) Asia and $980/tonne CFR India respectively.

“The PVC market situation is not optimistic,” said a regional producer when asked about the near-term price outlook and market sentiment. “It is, however, difficult for us to estimate how much lower the price can go.”

A northeast Asian trader echoed these sentiments and said: “Buyers are still slashing their buying ideas and giving us low numbers such as $920/tonne CFR CMP and even below.”

“As much as we are unwilling to admit this, it is clear that the market is not accepting [the price level of] $970/tonne CFR CMP well. This is why I believe prices will go down a bit more,” he added.

Despite overall weak market sentiment and expectations of further declines by the bulk of the market, some market participants are still optimistic that the market should stabilise soon because of a shortage of feedstock vinyl chloride monomer (VCM).

VCM in Asia has been facing a critical shortage of spot cargoes ever since Malaysia’s PETRONAS-owned Vinyl Chloride (Malaysia) Sdn Bhd decommissioned its 400,000 tonne/year VCM unit located in Kertih and exited the vinyls industry in January 2013.

With limited VCM spot cargoes available, some market participants, especially those who rely on VCM imports to sustain their PVC production, said that tight supply would prevent further slides in VCM prices.

While the VCM prices have been falling in tandem with the downstream PVC prices, they are expected to bottom out and exert upward pressure on PVC subsequently because of tight supply balance, said market participants.

According to ICIS data, VCM prices fell from an average of $935/tonne CFR NE Asia on 1 March to $815/tonne CFR NE Asia on 26 April.

Moreover, spot supply of VCM is expected to tighten further. This is because most northeast Asian producers have reduced their operating rates to an average of around 80% following poor margins and they further plan to reduce operating rates should VCM prices fall below $800/tonne CFR NE (northeast) Asia.

As a result, prices of VCM are expected to firm on the back of tight supply and in turn, exert upward pressure on the weakened PVC prices, said market players.

“No matter what, it is important to remember that we are short of VCM spot cargoes here in Asia,” said a regional VCM maker. “VCM cannot fall further [because of tight supply], and if margins continue to be thin, there is no reason for us producers to continue making VCM to sell.”

The same maker added, “If VCM prices move up on tight supply, PVC prices will have no choice but to move in tandem.”

However, the bulk of the market still believes that even though PVC prices might eventually bottom out because of feedstock VCM’s prices and the tight supply situation, the current situation still reflects negativity about the near-term price outlook for PVC.

A separate northeast Asian PVC producer said: “Many PVC producers are trying very hard to sell more volumes for May after the weak response for April-loading cargoes.”

“It is not only demand from buyers’ side that is pushing the prices down, but also the competition among sellers. One seller reduces price and everyone else will follow…it is very bad for market sentiment. It also does not help the situation as buyers will also lower their buying ideas immediately,” he added.

With most of the market sharing and echoing such opinions, market participants said it would be difficult to expect any significant improvement in the Asian PVC market for the next few weeks to come.

At the same time, market participants also added that PVC prices have fallen too sharply and would definitely bottom out eventually, potentially with the official announcement of June prices by FPC in mid or late May.

($1 = €0.77)

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


By: Jasmine Khoo
+65 6780 4359



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