OUTLOOK ’18: Mideast PVC upbeat 2018 onwards as region builds infrastructure

Author: Veena Pathare


SINGAPORE (ICIS)--The Middle East expects an improvement in market conditions 2018 onwards, supported by an increase in demand for polyvinyl chloride (PVC) in the region.

An uptick in construction activity led by an increase in economic spending within the Gulf Cooperation Council (GCC) and stabilization of market conditions in the East Mediterranean (East Med) region is likely to spur higher PVC demand this tear year, according to market sources.

Much of the demand for PVC in the Middle East comes from the construction sector where PVC is used for making pipes.

Last month Dubai approved the biggest ever budget for 2018, to ramp up infrastructure spending ahead of Expo 2020.

According to the new budget, spending on infrastructure is expected to rise by 46.5 per cent from 2017 to fund construction projects related to Expo 2020.

Industry sources expect this to give a push to demand for PVC within the UAE 2018 onwards.

Expansion of the existing metro line in the run-up to the Expo is also expected to call for greater demand for PVC in building infrastructure, a UAE-based importer said.

Separately, Saudi Arabia also expects to see a recovery in its economy 2018 onwards, spurred by an increase in non-oil revenue that would narrow the current budget deficit.

With the primary focus of lessening the country’s dependence on oil, Saudi Arabia announced its largest budget ever for 2018 – a proposed spending of 978 billion riyals ($261 billion), to boost the economy and bring its dependence on oil to 50 per cent of total revenue.

Based on the plan for 2018, the country aims to cut energy subsidies, which would then mean more funds are available for areas such as infrastructure, a GCC-based trader said.

“Efforts taken by two of the most influential GCC countries to infuse more funds into the economy would give a major boost to construction activity, propelling PVC demand,” the trader said.

Resin prices in the region are also likely to see a push spurred by improved demand, market sources said.

Demand for US cargoes is likely to strengthen, owing to limited production of the resin within the region.

As much as 50% of the total resin demand in the GCC has traditionally been met with imports from the US, with regional supply and Asian imports making up the rest.

Subdued demand following a slowdown in construction activity largely affected demand for US cargoes in the 2017.

Furthermore, local supply was also able to meet demand to a greater extent, given that overall demand was curtailed.

Competitive prices from the regional producer also hampered the attractiveness of US product among GCC-based importers in 2017.

Price movements in the GCC and East Med in 2017 were also largely impacted by supply trends, rather than demand movements.

Prices rose in the first quarter and peaked in March, buoyed by tight supply from the US amid plant turnarounds. Prices fell sharply late Q1 onwards tracking a plunge in Asian prices and weak sentiment. A marginal recovery in prices was seen from June to September, as improved domestic demand in the US halted a further decline in export offers to the Middle East.

However, any firm upside was limited by both a market lull during the month of Ramadan and Eid ul-Fitr holidays, as well as competitively-priced domestic product.

Mideast prices spiked for a brief period in September on tighter US supply in the aftermath of Hurricane Harvey, before falling to a twelve-month low by mid-November, prompted by improved US supply and producers’ efforts to destock inventories ahead of the year-end. Expectations of improved demand in the US domestic markets coupled with robust sales in the previous months have reversed the trend in Mideast prices since mid-December last year.

Furthermore, rehabilitation efforts following wars in Syria and Iraq is expected to drive construction and building activity, supporting greater PVC demand in 2018.

Jordan is also poised to see a boost in exports to Iraq and Syria 2018 onwards, following increased demand for finished products from these countries.

According to industry sources, Jordan is positioned as a hub for the manufacture of finished products, where resin is imported to manufacture the finished goods that are then exported.

Demand in the region has remained largely weak since the last five years, plagued by the political landscape in Syria and Iraq, two of the main markets for finished goods in the region.

Weak finished goods sales led regional polymer processors to continue operating their plants at reduced rates curtailing resin demand.

Trade within the region also remained affected by curtailed cash flows and profitability issues.

However, market conditions are on the verge to recovering, following the re-opening of the Iraq-Jordan border in late August this year after being closed for three years.

“Construction and infra building has been very weak since the last two to three years, affecting PVC demand but we hope for things to change from 2018,” a Jordan-based importer said.

Picture: Dubai skyline (WestEnd61/REX/Shutterstock)

Interactive by Nurluqman Suratman