Europe PVC sellers bullish on rises for July on demand, margins

04 July 2014 17:51 Source:ICIS News

LONDON (ICIS)--European polyvinyl chloride (PVC) producers are largely pushing for rises greater than the cost ratio amount in July, on the back of chlorvinyl profitability concerns and healthy PVC demand, market players said on Friday.

However, buyers are keen to limit rises to around the cost ratio level, citing sufficient PVC supply and thin downstream margins, sources added.

European PVC producers are mainly targeting rises of €35-50/tonne for July. For PVC, the cost ratio or formula pass-through level is equivalent to around 50% of the monthly ethylene contract movement, which translates to approximately €25/tonne for PVC in July. One supplier, however, has offered an ethylene cost ratio price increase of €25/tonne for its July PVC contract business.

Discussions for July PVC contract business are in their early stages in most cases, as a number of contracts are not fixed until the end of the month, although there is some variation, depending on the country.  

Two producers in northwest Europe and central Europe said they had already concluded some July PVC business at plus €25/tonne and plus €35-40/tonne respectively. However, there was no buyer confirmation to substantiate July PVC contract settlements with increases greater than €25/tonne at present.

Buying sources said they would strongly resist any increases above the cost ratio amount in July, stating that the PVC market was balanced and downstream margins are thin, and they were not able to pass on any increases to their customers amid strong competition.

One customer in the Mediterranean said it had agreed its July PVC contracts with increases of €25/tonne with two of its suppliers. It said that price rises larger than this were not acceptable in July, noting that its downstream demand is extremely low. 

Another customer did not rule out the possibility of a slightly larger increase than the formula pass-through level of €30-35/tonne, depending on the starting point, on a bullish seller sentiment and ongoing good demand from the downstream construction sector. The same source suggested that this is an opportunity for sellers to implement price increases and recoup lost chlorvinyl margins before the quieter summer holiday period sets in during August.

One trader is not convinced that price increases greater than the formula pass-through level will be successful for PVC in July. “If you push too much over the ethylene [cost ratio amount] with higher increases, [it] will push them [customers] into the holidays," it said.

The trader suggested that if price increases are too large then it is likely to jeopardise demand, particularly during the quieter summer holiday period, when buyers are likely to refrain from purchasing volumes in July until after the holidays.

The market is largely balanced. Consumption in the downstream construction sector in northwest Europe remains healthy, with little to no sign of any seasonal slowdown visible in July. Some players suggest that there is more likelihood of a summer lull in activity during August, the height of the summer holidays in Europe.

One customer in the Mediterranean, however, said it has experienced lower demand in July compared to previous years, which it attributed to ongoing economic constraints in the region, and to a lesser extent the seasonal slowdown during the summer holidays.

European PVC contract prices in June were assessed at €975-1,010/tonne FD (free delivered) NWE (northwest Europe), €905-990/tonne FD MED and £840-880/tonne FD UK, according to ICIS. This reflected increases of €10-15/tonne in northwest and southern Europe and a mix between rollovers and plus €10/tonne in the UK when compared with the previous month

By Heidi Finch