SINGAPORE (ICIS)--Asia’s polyvinyl chloride (PVC) prices are likely to be firmer in the first quarter of 2018 on expected stronger demand in Asia, mostly in China and India, in the coming months.
In 2017, PVC prices experienced downturns in the middle of the year, before heading up in September and October and falling again in November and December.
Key players in the Asian PVC market, China and India, both played instrumental roles throughout the year and will continue to play major roles in the PVC market in 2018.
In mid-2017, the introduction of a new goods and services taxes (GST) in India brought uncertainties to Indian buying interest, which saw prices fall significantly in May and June. Prices only recovered from September as the effect of the GST introduction waned. This is reminiscent of when the Indian government announced the demonetisation plan in November 2016, which saw PVC prices plunge upon the policy change, amid a cash crisis in the country.
However, as India’s economy is still growing at a healthy pace, its overall demand for PVC is likely to strengthen on significant infrastructure demand and housing projects. Nonetheless, any policy changes could still be a potential disruptive force on India’s demand for PVC cargoes.
A similar situation is seen in China. Overall, Chinese demand is projected to be stable-to-firm in 2018 as boosted by the country’s new development areas, such as in Xiongan in Hebei province, with some seasonal shifts expected. However, the impact of environmental inspections ordered by the government creates uncertainty on China’s PVC market. The scale and severity of the inspections will be a significant factor in Chinese PVC supply and demand.
About 80% of Chinese producers are still carbide-based, getting their feedstock from limestone and coke. Stringent environmental inspections in the country will significantly impact the production of the feedstock, as many are concentrated in the northern and northwestern parts of the country, which are subject to more extensive environmental inspections on higher levels of pollution in those areas. The environmental inspections could curb the supply of feedstock and limit the operating rates of PVC producers.
From the buyers’ perspective, especially for some smaller buyers, their productions are also affected by the environmental inspections, therefore limiting their buying interests.
According to some market sources, environmental inspections have become a new normal, which have to be factored in market projections in China. This trend is likely to continue in 2018.
In southeast Asia, demand from pipe segments have seen signs of healthy growth, boosted by construction projects in several countries, such as Indonesia, Thailand, Vietnam and Malaysia.
Southeast Asian importers are expected to be monitoring the Chinese market as well. When Chinese domestic prices are higher than import prices, very limited or no Chinese cargoes will be exported, leaving buyers in southeast Asia to source for other alternatives, typically at higher prices.