Middle East PVC may fall further on poor buying amid Iraq crisis

Focus story by Michelle Lim

SINGAPORE (ICIS)–Spot polyvinyl chloride (PVC) prices in the Middle East may continue to decline in the coming weeks because of low buying interest amid political instability in Iraq, market participants said on Wednesday.

On 12 September, PVC prices were assessed $10/tonne lower on the low end from the previous week at $1,010-1,040/tonne CFR (cost and freight) GCC (Gulf Cooperation Council), tracking lower bids, according to ICIS data.

PVC prices for the East Mediterranean (East Med) markets edged down $10-15/tonne lower from the previous week at $1,030-1,040/tonne CFR East Med, tracking lower offers.

GCC and East Med PVC prices have shed $30-50/tonne over five weeks since early August, when the US ordered air strikes against Islamic State militants in Iraq, according to ICIS data.

Last week, offers were quoted at $1,040-1,060/tonne CFR Jordan, but these were met with tepid buying interest with no firm bids received.

Some traders in East Med said there could be room for prices to fall further towards $1,020/tonne CFR Jordan levels, if air strikes in Iraq continue to hamper demand. Iraq is a key export market for finished PVC products from Jordanian converters.

In the East Med markets, most Jordan-based plastic convertors, whose main export market is Iraq, have refrained from buying PVC as orders for finished goods from its neighbouring country came to a standstill.

“It’s not about the price. There is no point in us buying PVC when we can’t export the finished goods to Iraq, with the borders closed on and off due to all this instability,” said a Jordan-based re-exporter.

“Our customers (in Iraq) are also not buying since the risk of losing their cargoes in transit is just too high,” said a re-exporter based in Jordan.

Political instability in the Middle East has also affected demand from the Turkish market.

Typically, demand for US PVC in Turkey were largely from re-exporters of finished products that enjoy exemption from anti-dumping duties of $45/tonne for cargoes originating in the US. Bulk of the Middle East’s PVC demand is met through imports from the US.

However, these re-exporters are finding it difficult to carry out re-exporting activities amid the political turmoil in the region, Turkey-based traders said.

The consequent glut of these cargoes and poor demand in the Turkish market have been prompting traders to offload material to the GCC market at lowers prices, industry sources said.

GCC and East Med PVC prices have respectively shed $40-50/tonne and $30-45/tonne over five weeks since 15 August, when the US ordered air strikes against Islamic State militants in Iraq, according to ICIS data.

A number of GCC end-users have had their inventory requirements covered till November, an India-based trader said.

India’s softening domestic PVC market has also prompted GCC buyers to adopt a cautious stance towards spot purchases, as they anticipate stronger export volumes and lower offers to come from northeast Asia, industry sources said.

In late July to early August, demand for PVC in the GCC had been stable as market participants were in the process of resuming business activities after the Eid ul-Fitr holidays, which marked the end of the Muslim fasting month of Ramadan.

The first week of August saw a deal involving some 400 tonnes of US cargoes for end-August shipment concluded at $1,070/tonne CFR GCC by a northeast Asian trader, while other offers for US-origin cargoes were heard at $1,075-$1,080/tonne CFR GCC levels.

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