INSIGHT: Latin America PVC markets hinting at firmer Q3 pricing

05 August 2014 16:12 Source:ICIS News

By Ron Coifman

HOUSTON (ICIS)--Polyvinyl chloride (PVC) markets in Latin America have been largely steady for several months, on direction from only moderate fluctuations in other global regions, mainly in the US and Asia.

Industry sources are projecting Latin American PVC prices to remain reasonably stable for the remainder of the third quarter, amid hints of somewhat firmer price levels in the not too distant future. However, pricing dynamics will ultimately depend on the path that markets in other regions follow driven by supply/demand balances and feedstock costs.

Resin prices in PVC-producing Mexico trend in line with the US because of geographical proximity and easy trade.

Non-producing countries along the Pacific coast of South America can import from the US or Asia, with buyers monitoring direction from either and leveraging their purchases according to competitive pricing and delivery conditions. Participants in the region pay special attention to Taiwan’s Formosa Plastics Corp (FPC) monthly benchmark price announcements.

PVC markets in Argentina and Brazil are buffered to some extent by their own domestic production. However, the two countries usually also fall in line with global dynamics, albeit sometimes at a substantial lag of as much as two to three months.

Industry sources say that PVC demand has been lacklustre throughout Latin America. The recently-ended soccer World Cup in Brazil contributed to weak activity in the country and in South America, beginning weeks before the month-long event started, according to the sources.

PVC supply remains in balance with disappointing demand in the Americas, and with the longstanding exception of Venezuela, where shortages have become the norm over the past several months.

Global PVC supply has been ample in recent months, on soft demand in other regions. The observation of Ramadan and the celebration of Eid ul-Fitr dampened commercial and industrial activity In the Middle East and some countries in Asia. Participants reduced purchases in India during the monsoon season. And business in Europe has been projected to decline for August because of the vacation period.

In the US, PVC demand rose during the summer construction period on seasonality, although not to spectacular levels, according to industry sources. Activity is expected to soften as colder weather sets in. US chlor-alkali production rose in June to an effective rate of 87%, the highest in 13 months.

US chlor-alkali production rate (%) - The Chlorine Institute

Jan

Feb

Mar

Apr

May

Jun

85

83

81

81

86

87


In Argentina, PVC demand has been described as weak, restricted by tighter credit, high costs of energy, utilities, transportation and services and the resulting reduction in discretionary spending.

Resin prices have been steady since mid-February and are projected to remain stable into the near future, amid sufficient supply to meet requirements.

Braskem is expected to assume operations of Solvay Indupa in September, unless the Brazilian government does not authorise the purchase.

In Brazil, business activity remains slow, but is expected to pick up in the near future on seasonality and on the return to normality after the soccer World Cup ended.

Sources say that prices are steady on balanced fundamentals.

Some market participants in Brazil are projecting improving demand in the near future based on the country’s traditional business cycle. Demand in general, not only for PVC, is typically slow in the first half of the year, and usually improves significantly in the third quarter.

However, the presidential elections to be held in October of 2014 could dampen activity because of uncertainty about the results and the direction the new government could take, while industry participants and investors in general remain cautious pending the outcome.

In Colombia, sources had projected rollovers or slight increases for resin exports.

Domestic prices were flat from June into July in the local currency, but were revised up for July by $11-13/tonne in US dollars because of currency exchange fluctuations. Export prices rolled over from June into July.

Local sources said resin is readily available amid weak PVC demand, but noted concern about political direction and the effect of reduced public spending on economic activity.

An 80,000 tonne/year PVC production expansion that became operational last month has raised the Colombia’s suspension PVC capacity to 410,000 tonnes/year. Production capacity of emulsion PVC remains at 60,000 tonnes/year.

In Mexico, sources talk of $30-35/tonne increases for the domestic market in August driven by initiatives from the local producer and from US exporters, supported by cracker operating problems and tight upstream ethylene supply in the US.

Mexico’s July PVC export prices were up from June, with deals done mostly at the high end of the assessed range.

Mexico PVC export prices (CFR Europe/Asia/Turkey – US$/tonne)

Mar

Apr

May

Jun

Jul

1,090-1,100

1,030-1,070

990-1,050

990-1,050

1,000-1,070

PVC prices remain steady in Venezuela on government controls, as participants face a severe resin shortage.

Sources say that the domestic producer is shipping partial orders and is not offering sufficient domestic or imported material. Availability is not expected to become balanced with demand in the near future, as PVC imports are not being resumed until September.

The country’s population is suffering from shortages of a wide range of products, including raw materials, consumer items, food and medicines, because of the lack of foreign currency to pay for imports.

Regional sources in countries along the Pacific coast of South America said US PVC offers firmed by $10-15/tonne in late July, but the region’s industrial activity is gauged as lacklustre.

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

The following shows PVC prices in various coutnries in Latin America.

Latin American PVC prices

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By Ron Coifman