OUTLOOK ‘16: Asia PVC players cautiously optimistic on price trend

SINGAPORE (ICIS)–Asia’s polyvinyl chloride (PVC) players are cautiously optimistic that prices have bottomed out and will start going up in the first half of next year, industry sources said.

PVC prices are hovering at their lowest levels since May 2009, according to ICIS data.

Prices of feedstock vinyl chloride monomer (VCM) are expected to continue tracking PVC values in 2016.

Market players see little-to-no change in the demand-supply balance in the vinyls production chain early next year.

A major vinyl producer in southeast Asia, PT Asahimas Chemical, was expected to complete and start up its expanded vinyl plant, containing chlor-alkali, ethylene dichloride (EDC), VCM and PVC production facilities in the first quarter, but this should not have any significant impact in the spot VCM market in the region.

New VCM production volumes from the project have been earmarked for captive use, domestic sales and contractual business within southeast Asia, market sources said.

For EDC, another chlorine derivative and the feedstock for PVC, prices have recently bottomed out and are slowly firming up amid improved buying sentiment.

Cost pressures stemming from high prices of ethylene, the main feedstock for EDC, against record low PVC prices, PVC producers were opting to tap the spot market for raw material.

Ethylene prices have surged about 30% since 7 September to $1,062.50/tonne CFR (cost and freight) NE (northeast) Asia on 4 December, but PVC prices shed about 5% over the same period, according to ICIS data.

But EDC buyers appear to be growing more accepting of higher prices, on expectations that downstream PVC prices will recover in the first quarter, according to sellers.

US producers that supply the bulk of spot EDC parcels in Asia had recently started pushing for higher fixture prices.

But demand for PVC is generally soft across Asia.

In the key Indian market, northeast Asian PVC sellers are facing stiff competition from Latin American producers, which have been exporting to this region for better netbacks.

US PVC producers are likewise shipping out cargoes to Asia with a view of keeping their taxable inventories lean towards the end of the year.

India remains the most attractive export destination for Asian PVC producers in 2015, although demand has been sluggish for much of the year, especially from pipe makers because of a weaker monsoon season in the country.

Buyers in the south Asian country also kept to the sidelines during Diwali, or the Hindu Festival of Lights, around mid-November.

Market sentiment has been largely bearish in 2015 because of sharp fluctuations in the upstream crude prices, with Brent crude seen plunging to its lowest level in 11 years.

China’s market has been soft throughout the year amid an economic slowdown and weak construction sector. The country’s decision to devalue the yuan in August dealt a blow to buyers’ appetite for PVC imports.

In southeast Asia, prices largely tracked the Chinese and Indian markets. Demand in Vietnam was robust for much of the year due to the strength of the country’s construction sector, but was lacklustre in some other countries in the region whose currencies were battered in 2015.

January may see PVC prices gradually rising in spite of softness in demand ahead of the Lunar New Year holiday, which is observed in most parts of northeast and southeast Asia.

The Lunar New Year falls on 8 February 2016. China will be on holiday from 7-13 February.

After which, prices should continue on an uptrend until the onset of the monsoon season in India in the third quarter.

India’s monsoon season in 2015 was uncharacteristically weak due to the El Nino phenomenon. Market players are hopeful that conditions will improve in 2016 and translate to more robust demand.

Year-end price pressures will disappear as the market ushers in 2016, but cheaper carbide-based PVC from China could exert pressure on the Indian market, a source from a major producer in northeast Asia said.

China’s domestic PVC market is weak, and a further softening of prices is expected ahead of the week-long Lunar New Year celebration in the country, market sources said.

Against this backdrop, Chinese producers may opt to export large volumes at lower prices to keep their inventories low during the week-long holiday, they said.

Huge export volumes from China would change the market dynamics, especially in India, where the bulk of buyers can use carbide-based PVC in place of ethylene-based PVC.

Domestic PVC prices in China stopped falling in end December and have started recovering, leading many market players to comment that spot PVC prices should rebound next year too.

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

By Kite Chong