OUTLOOK ’19: PVC markets to remain soft in Latin America

HOUSTON (ICIS)–Latin America polyvinyl chloride (PVC) prices, whether domestic, export or import, are expected to remain soft into the first quarter of 2019, driven by regional weak demand on seasonality, weaker prices for feedstock ethylene in the US and declining crude values.

Although Taiwan’s Formosa Plastics Corp (FPC) announced increases of $20/tonne in December and $20-30/tonne in January for PVC in Asia, the hikes came after two consecutive declines: the first one in October at $90/tonne and the second in November at $30/tonne.

Price changes in Asia generally suggest direction in Latin America, although the amount of the fluctuation may vary from that in Asia, and may occur at a lag. In Latin America, PVC industry participants are not expecting increases in December despite the announced hike in Asia, compensating for the modest regional softness in previous months compared with the steep drops in Asia.

Taiwan’s FPC price changes ($/tonne) in 2018

	Aug	Sep	Oct	Nov	Dec	Jan
CFR CMP	+20	r/o	-90	-30	+20	+20
FOB NE Asia	+20	r/o	-90	-30	+20	+30

PVC prices in Latin America are not likely to rise in the short term because of decreasing demand in line with seasonality and Carnival holidays in early March. During this period, vacations tend to dampen business activity.

Business in Argentina and in Brazil has remained below expectations for the past couple of years, as the two countries gradually recover from their respective recessions of 2016. Participants in both countries had initially projected speedier economic improvement.

General demand in Venezuela is minimal. Domestic producer Pequiven has not produced PVC for months. To import resin is difficult, as foreign currency to pay for imports is not readily available. Some businesses started year-end vacations as early as mid-November, for the lack of activity.

Dampening the recovery in Argentina, the country experienced a major currency devaluation in mid-2018. Argentina’s currency market has recently shown more stability following an agreement on a $50bn credit line from the International Monetary Fund (IMF). However, domestic prices for services and fuel have continued to rise, while the population’s purchasing power decreased, deepening the country’s recession.

Low activity is expected in the next quarter in Argentina, and possibly even the next two quarters, as a result of high interest rates, which are discouraging investment and consumption. The benchmark interest rate in Argentina stands above 60%.

The IMF has published GDP growth projections by country in its World Economic Outlook of October 2018. The following table shows GDP forecasts for the western hemisphere.

GDP TABLE

GDP growth projections are likely to reflect activity in different countries. Particularly strong growth is projected for Bolivia, Chile, Paraguay and Peru. Critical conditions are expected to continue in Venezuela, while Argentina’s recovery is projected to remain slow.

Contributing to economic uncertainty, a heavy election calendar was scheduled in Latin America in 2018:

Brazil – 7 October, second round 28 October

Colombia – 17 June

Mexico – 1 July

Venezuela – 20 May

Business usually slows in anticipation of an election, or until a president-elect takes office and new policies are established. Andres Manuel Lopez Obrador (AMLO) took office in Mexico on 1 December, while Jair Bolsonaro takes office in Brazil in January. The policies the new presidents might follow remain unclear. In Mexico, the announced cancellation of Mexico City’s airport construction has dampened market sentiment and driven the peso to weaken against the US dollar. Business participants protested AMLO’s decision to discontinue the already started construction of the airport.

PVC producers in Latin America are Braskem, Mexichem, Pequiven and Unipar.

Latin America PVC prices 

Focus article by Luly Stephens
Additional reporting by Ron Coifman

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