Focus article by Heidi Finch
LONDON (ICIS)--European polyvinyl chloride (PVC) sellers are pushing for more than the cost ratio rise in June for margin reasons and while some buyers acknowledge that an increase is likely, they expect it to be a modest one, market players said on Friday.
KEM ONE has recently announced its intention to raise its PVC prices in June by €25/tonne in order to get some compensation in its ECU (electrochemical unit) margins for the price erosion in the caustic soda market over recent months.
Chlorine is co-produced with caustic soda in the electrolysis unit and any losses through the chlorvinyls value chain need to be compensated by the other products.
Targets of €20-25/tonne are largely being reported by other sellers, although one supplier is offering plus €15/tonne.
News of the €10/tonne increase in the ethylene contract price for June also means that PVC prices are likely to rise by around €5/tonne from a cost ratio perspective, although margin recovery to compensate for caustic soda losses is the main driver for the proposed increases.
For PVC, the feedstock consideration is generally around 50% of the monthly ethylene contract price movement.
A few suppliers said they had already concluded some early price settlements at plus €15-20/tonne in parts of Europe, but this was not confirmed on the buy-side.
Buyers generally concede that an upward move is likely in June on a bullish seller position and high season in the construction industry.
Nevertheless, they expect any increase to be limited by sufficient PVC supply and in the context of recent PVC price changes, which have afforded sellers some margin over the feedstock movement.
They said they will strongly resist any increases in excess of €20/tonne, considering price rises of €10-15/tonne for PVC pipe and cable grades in Europe and £10/tonne in the UK most realistic.
One buyer, however, did not rule out the possibility of plus €20/tonne as a maximum. Another customer said it had secured a rollover with one minor supplier in June, but said it had offers of plus €10-25/tonne from its other sellers.
There was, however, no confirmation of rollovers from the sell-side at the time of writing.
The PVC market is largely balanced, albeit with a few exceptions. Consumption in the downstream building sector is reasonably good for the time of year, particularly in northwest Europe.
PVC demand into the construction industry is typically in high season during the spring and to some extent during the summer.
However, views on demand in the Mediterranean are mixed, depending on source and part of the region. One manufacturer said its order intake in June in Iberia is the best so far this year.
Another supplier also in southern Europe said that while activity is seasonally healthy, it suggested that it could be better for the time of the year.
It said that while activity in France was still muted amid ongoing economic constraints, it had seen some slight improvement in demand in Italy, although the latter was contested by a buyer, who said its demand remained depressed.
PVC contract prices in May were assessed at €965-995/tonne FD (free delivered) northwest Europe, €895-975/tonne FD MED and £840-870/tonne FD UK, according to ICIS.
This reflected a rollover for low-end business, but rises of €10/tonne in mainland Europe and £5/tonne in the UK at the upper end of the ranges from the previous month.
There is stable-to-firmer price sentiment in May despite some slight relief in upstream ethylene costs because of a drive for margin recovery and seasonally good demand.