APLA ’23: US PVC exports strategies increase market share competition for new projects in Brazil

SAO PAULO (ICIS)–The rivalry for a share of the Brazilian polyvinil chloride (PVC) market has expanded to a global level, with more companies from the US and Asia competing to capture a portion of the country’s PVC demand, as their respective economies continue to suffer from a decline in construction, infrastructure and automotive production.

The import prices continue exerting downward pressure on the local prices, thus eroding margins, even though import duties in Brazil have returned to their previous level of 11/4% heading into this year’s annual meeting of the Latin American Petrochemical and Chemical Association (APLA).

The competitive export landscape to Latin America, Europe and certain Asian countries is reflected in the fluctuating US spot export prices in response to alluring offers from Asia to these destinations.

The majority of attention has been on US suppliers attempting to envision the new market over the last few weeks since domestic sales continue sluggish. The average price per tonne in Asia has dropped to $100, and the rates for container freight from the US Gulf to Asia are quite affordable.

Along with US Gulf export offers influencing prices in Brazil, high crude oil prices are also affecting ethylene prices, which in turn alters PVC production margins throughout Latin America in Q4.

The increase in the US export volumes has been made feasible by the slowdown in demand in the US and Canada, as well as by improved output from one US manufacturer following plant repairs in July and another that is anticipated to contribute volumes in the upcoming weeks following the completion of scheduled maintenance.

US PVC spot export prices decreased in the first week of November, with the new range being set at $690-710/tonne FOB in the first week of November.

Market participants from the US have indicated that North American PVC demand is weak and that in order for domestic prices to be significantly impacted in the near future, export supply must be significantly tightened.

Buyers in the US have now had the opportunity to discuss potential contract price reductions due to the rapid and significant decrease in spot export prices compared to contracted prices.

Furthermore, ACC industry data has revealed that domestic sales in the United States and Canada are running approximately 19% lower than in 2022, due to a decrease in residential construction.

In the first week of November, PVC prices in Brazil were reported to be trending lower; however, they stayed within their previous range because discounts applied to specific industries remained within the October range.

Given the weak to stable demand in the country and the persistent impact of feedstock costs on Q4 margins, the Brazil PVC industry is expected to continue to face further challenges in 2023. Brazil has a steady supply of PVC, and there is enough stock on hand to accommodate local spot business.

In November, there were comments of fluctuations in PVC prices in Mexico; however, prices remained stable pending broader market input. Mexico’s PVC market is steady, with only minor fluctuations across different industries. Mexico PVC supply continues stable, with plentiful spot material availability in Q4.

The PVC market in Argentina had no price fluctuations in the first week of November, based on the weak demand in the country.

A market participant from Argentina said PVC supply continues to tighten in Q4 due to the persistent difficulty of bringing imported feedstocks to the country.

Prices for PVC in Colombia were left unchanged this week, pending additional market input. Demand in the country continues relatively stable, with good inventory levels to support spot deals.

A market participant estimates that the production rate of PVC in the US is approximately 82%, whereas the production rate in Brazil is approximately 70–75%.

According to industry data recently released by the ACC and Vault Consulting, September saw a minor decline in resin production along with a drop in sales in the US and producers’ captive usage.

Producer inventories went up by about 3,800 tonnes as a result. Export volumes have been rising steadily as US sellers individually try to make up lost domestic sales in foreign markets.

In Asia, the continued muted macroeconomic environment, made the PVC spot trade slow down toward the end of October, with buyers primarily purchasing out of necessity, supporting the focus on international markets like Latin America.

However, after that, buyers felt that sellers’ recent asking prices for shipments in November were fair and decided to aggressively restock to offset falling inventory levels.

China continues to face challenges in the PVC industry due to the country’s vastly higher housing supply than demand, China’s developers have accrued substantial debt, and the market wonders if this will worsen their circumstances in the near future.

Brazil is largely dependent on PVC imports, so problems with the global supply chain could affect its market. In order to mitigate risk, PVC exports from US and Asian suppliers are diversified, as any force majeure (FM) or supply disruption in exporting countries could directly impact Brazil’s economy.

Domestic PVC prices in Brazil are directly related to fluctuations in fuel costs, international freight and exchange rates.

Changes in exchange rates can have a significant impact on the price of imported PVC, and a weakening in the Brazilian real could lead to an increase in the cost of imports, impacting the price of goods that contain PVC resin.

According to the ICIS Supply and Demand database, Brazil imported 106,489 tonnes of PVC in Q3. It represented an increase of 7.32% when compared to the same period last year.

As Brazil intends to invest in infrastructure projects in 2024, the demand for PVC may increase in the coming months, based on the project called Minha Casa Minha Vida.

In contrast to the 270,000 units contracted in 2022, the Brazilian government aims to contract 2m housing units by the end of current president Luis Inacio Lula da Silva’s term. This translates to an average annual contract of 500,000 units.

Developers now have greater security and assurance that there will not be a shortage of funding thanks to a 42% increase in the FGTS housing financing budget, which went from R$68bn to R$97bn in Q2.

Brazil government stated in Q3 that the 2024 budget proposal included R$13.7bn for MCMV; this is a 41% increase over the current budget. The goal of the resources is to support units in Range 1, where 50,000 new units are anticipated to be contracted by the government by 2024.

Since the construction sector mobilised 62% of Brazil’s total vinyl market in 2022, projects like Minha Casa Minha Vida, which are aimed at providing public housing, offer hope to the PVC industry. It has been viewed by the market as a potential welcome relief following several losses in margin and demand in the previous few years.

The 43rd APLA annual meeting takes place 11-14 November in Sao Paulo, Brazil.

Focus article by Daniel Lopes