APIC ’13: China PVC prices to recover in 2013 - analyst

10 May 2013 09:17  [Source: ICIS news]

TAIPEI (ICIS)--China polyvinyl chloride (PVC) prices are likely to strengthen over the next six months, driven by an improving chlorine market buoyed by a recovering housing market, the chairman of data consultancy Tecnon Orbichem said on Friday.

The period is also likely to see a weakening market for caustic soda, as the chlorine and caustic soda markets tend to be counter-cyclical, Tecnon Orbichem chairman Charles Fryer told an audience at the Asia Petrochemical Industry Conference (APIC) in Taipei, Taiwan.

Caustic soda pricing is likely to weaken in line with slowing industrial production levels in the country, he added.

“We should be seeing for the next six months a continuing weakening in the caustic soda price and an improvement in the chlorine price. That can be correlated with a slowdown in industrial activity in Asia, but with some improvement in the chlorine and PVC industry led by improved housing construction,” Fryer said.

Crude oil prices of $70/bbl or below make it uncompetitive to produce PVC from acetylene, the dominant production route in China.

But current oil price levels of over $100/bbl make acetylene-derived PVC cheaper than PVC from ethylene, meaning that China is able to export PVC at prices that are competitive on the international market, Fryer said.

“Very nice profits were to be had [in the China PVC market] in 2005-7, provoking an enormous expansion in capacity. Then the bubble burst, and since then, there has been much more modest profitability or indeed some losses – quite substantial losses over the last couple of years – but today things are pretty well back in balance, and small profits are once again restored,” Fryer said.

“With crude oil at today’s prices, China can continue to export PVC,” he added.

The US is also continuing to benefit from low production costs as a result of the shale gas boom, leaving transforming it into one of the most cost-effective chlor alkali producers in the world, according to Fryer.

He said:  “You look back to 2006-7, you had energy costs about double what they are today, natural gas prices have come down to about $3.50/MMBtu [million British thermal units], and that translates to a low cost for electricity.

“It means that in the space of  a few years, the US has been transformed from being a fairly high-cost producer of chlor alkali to being one of the lowest cost producers in the world. Only the Middle East has a lower cost,” he added.

Meanwhile, Europe has suffered from much higher natural gas prices, meaning that the PVC market in the region has suffered from higher chlorine costs.

France-based producer KEM ONE, owned by Swiss investor Klesch Group, recently put its upstream vinyls business into receivership, while Switzerland-headquartered producer INEOS and Belgium-based company Solvay announced plans to put the bulk of their chlorvinyls operations into a joint venture earlier this week in a bid to improve competitiveness.

Fryer said said: “In Europe, natural gas prices are more like $9-10/MMBtu, which means that the cost of production of the ECU [electrochemical unit] is more like $450, so Europe is not really competitive at the level of production of chlorine and caustic soda, so the vinyls industry has got to be able to cope with effectively higher chlorine costs.”

By: Tom Brown
+44 208 652 3214

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