US PVC exports tumble as demand weakens in key markets

Consumer demand

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US PVC Sept14The US PVC industry is hitting new problems, to add to the post-2006 collapse of the US housing market.

Yet only 10 years ago, it was riding high.  Demand into housing (the main outlet) was at record levels thanks to subprime lending, and PVC production had just hit a record 7.3 million tonnes.

Even after the financial Crisis, global markets picked up the slack left by the US housing downturn.  Exports zoomed to over 40% of total output, allowing production to recover to 6.7MT.

But now further change is underway, as the chart above shows of net H1 PVC exports versus H1 2013, based on Global Tade Information Services data:

  • Every single export market has seen volumes fall, some by massive amounts
  • Total export volume is down by 19%
  • Exports to Latin America were down 10% despite the boost from the World Cup and the 2016 Olympics
  • Exports to the Middle East were down 14%, as Saudi volumes fell 31%
  • Exports to China were down 23% and exports to the Former Soviet Union were down by 2/3rds

Of course, there must have been some volume reduction due to unexpected ethylene shortages.  And optimists might hope that the US housing market may see a further boost.  But most of the lost volume is secular and not cyclical.

Brazil went into recession in H1, and Argentina is in the middle of a prolonged default debate, which makes its economic position likely to become worse, not better.   Even worse is the position with China, which has switched from being a major importer, to a major exporter:

  • Its net imports were 432kt as recently as January-July 2012
  • But this year, its net exports reached 210kt in the same period

US CAUSTIC SODA EXPORTS DOWN 16%
PVC is, of course, a major application for chlorine.  And chlorine’s co-product, caustic soda, has also seen US net exports decline across the board in H1.  This confirms the downturn is secular, and not just due to temporary developments.

Total net exports of caustic soda were down 16%, a very similar volume to the PVC decline:

  • Exports to Latin America were down 10%, and down 14% to the Middle East
  • Exports to China were down 23%, and down 67% to the FSU
  • As with PVC, exports to China and the FSU will likely be even lower in H2

Yet whilst this decline is taking place, producers are still lining up to expand.  Maybe they know something about future demand that has escaped the blog.

But it can’t help worrying, as it wrote back in March, that they have fallen into a major trap.  They hope that the Boomer-led SuperCycle will return, making advantaged supply once more the key focus.

Yet all the evidence suggests we are now moving into a Boomer-led New Normal, where advantaged demand positions will be key to future growth and profit.

 

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