Latin America PVC prices decline amid global trade shifts

Ron Coifman

21-May-2015

Focus article by Ron Coifman

Latin America PVC prices decline amid global trade shiftsHOUSTON (ICIS)–Polyvinyl chloride (PVC) prices into Latin America are declining for June driven by ample supply in the US, moderate demand in Asia and general global dynamics, sources said on Thursday.

June offers from the PVC producer in Colombia to South America, but not including Brazil and Argentina, fell by $60/tonne. PVC from the US into countries along the Pacific coast of South America is quoted $20/tonne lower from one week ago, and further price reductions are expected in the near future, according to sources.

Demand in Brazil, Argentina and Chile is weak on economic, political and social issues, regional industry participants said. Brazil’s GDP projections have been declining for several months. Industry participants in Chile noted uncertainty arising from new tax laws, political issues, flooding in the north and volcanic eruptions in the south. In Peru, farmers were protesting new copper mining projects that could hurt the environment.

In Asia, Taiwan’s Formosa Plastics Corp (FPC) announced a $30/tonne decrease for its June benchmark offers into India, China and northeast Asia, and a $20/tonne decrease into southeast Asia. FPC’s price cut came as no surprise to most market participants as demand was subdued for May – loading cargoes and prices of feedstock ethylene were soft.

FPC’s benchmark announcements generally point to the global PVC direction, and are lending support to the softening trend in Latin America, according to sources.

In major Asian markets, PVC demand in India remains slow because of the upcoming monsoon season, along with high resin inventories after greater-than-average volumes imported in April. Not much is heard in terms of rising or falling activity in China, but market sources gauge demand to be moderate at best.

However, PVC production issues in Europe are clouding the global outlook. With several declarations of force majeure on PVC and on upstream ethylene in Europe, market talk pointed to a range of scenarios that include a potential shift of PVC trade flows around the world.

Tight supply and rising PVC prices in Europe are expected to attract non-traditional suppliers from the US and Mexico.

With favourable duty treatment, Mexico might increase its exports to Europe, in turn replacing its own domestic resin requirements with easy imports from the US, sources proposed.

Also, with reduced European PVC supply, Turkey, a traditional destination for European PVC, could turn to other sources for resin, probably Mexico or the US despite the application of import and antidumping duties. Turkey remains a gateway to re-export markets in the Middle East and north Africa.

In Europe, chemical producer KEM ONE has declared force majeure on all suspension and mass PVC and upstream vinyl chloride monomer (VCM) sales due to an unexpected cracker shutdown, according to a source from the company this week.

Force majeure declarations for PVC were made to buyers on 18 May. The source said a fire at Naphtachimie’s cracker at Lavera has led to ethylene supply restrictions, and that as a result its units have halted production there whilst its Fos plant is running at a reduced rate.

The source added that it is not on force majeure for caustic soda and that it can supply all contracted material, although the volumes it can sell on the spot market will be reduced.

This shutdown will further constrain supply in the already tight European PVC market due to following on the heels of force majeure declarations at Vinnolit’s Cologne and Knapsack plants. The Vinnolit production difficulties were the result of ethylene supply constraints from Shell’s refinery in Wesseling.

The source noted that PVC availability is tight, but that INEOS’ Wilhelmshaven plant coming back online on Monday will help to balance the market.

Additional reporting by Chris Barker and Kite Chong

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