INSIGHT: Industry expects steady Latin America markets for PVC

09 September 2013 17:51  [Source: ICIS news]

By Ron Coifman

HOUSTON (ICIS)--Industry participants are projecting steady polyvinyl chloride (PVC) domestic markets in Latin America in September, on balanced fundamentals.

Major changes are not expected in Latin America through the end of 2013, according to sources, but market dynamics in Latin America will track markets in the US and Asia.

PVC demand is likely to decline in December as participants through the production chain shave inventories to reduce tax exposure. But buying interest in Latin American markets should increase in the first weeks of 2014 as consumers purchase resin to balance depleted stocks.

Business should then drop again, as the population in South America focuses on Carnival holidays on 28 February-4 March.

Commercial activity in Brazil, the major economy in South America, will decline significantly for Carnival.

Business in Brazil should rise gradually through the remainder of the first half of 2014, and then improve notably the second half of the year on seasonality.

Early this year, the PVC industry in Brazil faced major challenges.

Participants throughout the production chain in Brazil were caught with particularly low stocks in early 2013 because of the power outage in late October 2012. The blackout resulted in continuing technical issues which led to a maintenance shutdown at Braskem’s PVC plant in Camacari in late November. Inventories in the country finally came into balance with demand during the second quarter of 2013.

PVC players in Latin America monitor resin and feedstock prices in Asian and US markets in efforts to project direction for the region. They note that Latin American markets usually lag Asian developments by several weeks. Pricing direction in Latin America for the near future is less than clear, as much depends on developments in other regions.

Although Latin America is not a monolith where all countries react to global market forces in exactly the same way or at the same time, there is a commonality in the region’s response to dynamics in other regions, particularly in the US and Asia.

However, despite the focus on distant markets to gauge regional trends in the Americas, local factors also have a role to play.

Although Mexico is a PVC producer, Mexican, Central American and Caribbean PVC markets usually track the US market closely because of geographical proximity.

Brazil and Argentina, each a PVC producer, are closely aligned with each other and show some independence from other external markets, although they also follow developments in Asia.

Countries on the Pacific coast of South America which rely totally on resin imports to fulfil requirements are influenced more immediately by US and Asian PVC markets.

Latin America has been a target for US PVC suppliers who continue looking for export sales.

US demand remains soft amid the gradual and irregular recovery of the construction sector and the domestic economy, while US exports to Asia are suffering from slowing growth in China, from a weakening market in India and from the eurozone woes.

Colombia and Mexico export some of the resin they produce. Colombia usually exports to Brazil and the rest of South America. Mexico targets exports to Asia, particularly China and India, as well as to Europe, and especially Turkey. PVC exports from Mexico to Europe and Asia are facing similar challenges as exports from the US.

Venezuela’s PVC manufacturer Pequiven has been having unspecified technical issues and is importing PVC to supplement domestic production. However, PVC supply is said to be extremely tight and no immediate solution is noted.

PVC demand in Latin America has been steady but not spectacular, according to regional sources.

Industry participants in Mexico say the government has approved public works projects and demand could rise significantly as a result. However, local sources are expecting a slow start to these projects as red tape usually slows government initiatives.

Demand in Brazil has picked up in the second half of 2013 on seasonality after a weak first half, sources said. Activity is projected to continue improving on increasing construction for the Soccer World Cup in 2014 and the Summer Olympics in 2016 to be held in Brazil.

In Argentina, business is moderate because of restrictions on imports of raw materials, capital goods, equipment and replacements, as well as on the availability of foreign currency to pay for the imports.

In late August, pipe-grade PVC domestic prices in Mexico were assessed at $1,070-1,120/tonne DEL (delivered) and in Colombia at $1,250/tonne DEL.

Import prices for pipe-grade PVC in South America are gauged at $1,050-1,100/tonne CFR Pacific coast of South America.

PVC producers in Latin America are Braskem, Solvay, Mexichem and Pequiven.

($1 =  0.76)

By: Ron Coifman
+1 713 525 2653

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