NPE: PVC market buffeted by plunging feedstocks and plant outages

US polyvinyl chloride (PVC) market participants are enjoying the benefits of lower ethylene prices: lower prices for buyers and still-strong margins for producers.

The demand outlook is fairly bullish with construction activity on the upswing in the US market and pockets of growth in Brazil and India are helping to keep export prospects promising for producers.

But first the market must make it through a period of plant maintenance scheduled for the first quarter that has already put upward pressure on prices.

Those outages include Shintech’s Freeport, Texas, PVC plant (1.45m tonne/year) for 21 days of maintenance in February-March; OxyChem’s feedstock plants in Ingleside, Texas, and Axiall’s plans to take its Plaquemine,Louisiana, plant (726,000 tonne/year) down in March.

That expected production shortfall is partially offset by strong production rates in January and lower export volumes on seasonally soft demand.

But US PVC producers have separately announced price increases of 3 cents/lb for February and another 3 cents/lb in March.

Market participants say supply has remained adequate in February and it is not expected the increases will be implemented at their full level, if at all.

Players expect any increase will likely be returned in April or May after the maintenances are completed.

Ethylene prices remained elevated in the US Gulf region for much of 2014 on ethane cracker outages and persistent problems with the Evangeline Pipeline, which carries ethylene from Texas to Louisiana chlor-vinyls plants. PVC prices rose about 11 cents/lb through the year.

Since ethylene’s decline, down about 20 cents/lb since October, prices for PVC have come down only about 7 cents/lb.

Many US PVC market participants are expecting further reductions to more closely match the ethylene cost ratio, or about 50% of the PVC price, or a further decrease of about 3 cents/lb, overall.

The expected rise in demand for PVC has been predicted for the past three years, or more.

RISE IN CONSTRUCTION
There is a marked rise in construction activity; new home construction starts are up about 19% in January from January 2014. The US Department of Commerce in February said that January brought 1.065m new home starts on a seasonally adjusted annual basis – up from 897,000 units started during the first month of 2014.

Market observers are predicting PVC will assume the driver’s seat for chlorine production and several producers are now seeking price increases for chlorine, which have languished for the past 30 months.

Several chlorine producers, including three big ones, Olin, Axiall and OxyChem, are seeking price increases for chlorine. Axiall says it will seek an increase of $85/ton, Olin is seeking $75/ton and two weeks later OxyChem announced it would seek an increase of $25/ton.

Market observers say the lower increase is the amount likely to be implemented in the market, or some portion of it.

The US market is closely tied to the markets of Central and South America where the impact of falling crude oil prices on petrochemical prices is coming sharply into focus.

Generally, PVC prices are expected to decline tracking a weaker energy market – but at what rate and where the floor lies, remains a matter of speculation. It appears, however, that PVC prices may have reached bottom in February and could be rebounding, while industry sources suggest signs of clearer direction might be emerging.

PVC buyers in Latin America were holding off on purchases, only committing to immediate requirements, although resin buyers tend to restock after a usually thin December market.

Apart from the effect of the crude oil market trend, PVC prices in Latin America and in other global regions had declined during the fourth quarter on other factors: the week-long National Day holiday in China at the beginning of October; the Diwali festival in India starting on 23 October; and the conflicts and uncertainty in the Middle East which are affecting business in Turkey, a key distribution hub for the region.

PRICE DECLINES IN ASIA
PVC prices around the world, particularly in Asia, had been decreasing for several months as slow global demand placed downward pressure. Taiwan’s Formosa Plastics Corp (FPC) has been leading the way with its monthly benchmark offers into Asia, announcing price decreases in each month from September through January. FPC then reversed direction, announcing price increases for February and March.

Additionally, demand for PVC and for many raw materials decreases significantly in Latin America and other regions on the approach of year-end because of holidays and inventory reductions to minimise tax exposure. Resin prices in PVC-producing Mexico trend in line with the US because of geographical proximity and easy trade.

Ron Coifman contributed to this article