Middle East PVC seen steady into Q4 amid lukewarm demand

SINGAPORE (ICIS)–Polyvinyl chloride (PVC) prices in the Middle East may remain stable heading into the fourth quarter in spite of disruptions to US supply, as regional demand is expected to stay sluggish for the rest of the year.

On 25 August, PVC import prices in the Gulf Cooperation Council (GCC) market were assessed at $890-920/tonne CFR (cost and freight) GCC, stable since the start of the month, according to ICIS data.

Some upward pressure may ensue following plant shutdowns in the US Gulf Coast, which was inundated by Hurricane Harvey late last week.

The Middle East procures more than half of its PVC requirements from the US.

But buyers in the region are not keen to engage in active discussions ahead of the Muslim holiday of Eid ul-Adha or Feast of Sacrifice, which largely falls between 1-4 September.

They are buying largely on a need-to basis and supply is currently available from Saudi Arabian producer SABIC at competitive prices.

The regional producer has available supply to export due to weak domestic demand, industry sources said. SABIC’s offers for July and August were mostly between $900-920/tonne DEL (delivered) GCC, which is below $900/tonne on a CFR basis.

“This is much more competitive than US cargoes. All business has gone to them [the regional supplier] for Q3,” a Gulf trader said.

Traders of US-origin PVC into the Middle East are finding difficulty finding a sales outlet.

“It’s very hard to make a sale right now… demand is weak,” a US-based trader said.

Market players were uncertain if PVC trade could pick up in the fourth quarter.

“We do hope that more people would start to source for imports from October onwards, but demand remains very slow for now. The construction sector is not picking up as rapidly,” a UAE-based importer said. 

The bulk of PVC demand in the Middle East comes from the infrastructure industry, but political issues hounding the region are having a dampening effect on demand.

“There is the crisis with Qatar. Infrastructural demand could be there, but nobody would dare to sell to them,” a pipe converter in UAE said, citing recent political tensions between Qatar and other countries in the GCC.

Trade sanctions against Iran, in relation to the country’s nuclear programme, also deter trade.

“The US has been closely monitoring cargoes into the Middle East, including compliance certificates,” a US cargo distributor said.

“As a result, traders are not allowed to sell to sanctioned countries like Iran. Checks have been ongoing for a while since the Trump presidency,” he said.

US’ PVC cargoes are currently being diverted to other markets, where prices are higher.

“US suppliers are unlikely to lower prices even in Q4, because of good domestic demand and price hikes in Asia,” a Jordanian trader of US cargoes said.

The US’ own demand for PVC in the first half of 2016 has increased 3.8% year on year that it cut its export volume by 7% over the same period, according to industry and official data.

US PVC export prices have been stable-to-firm since May this year, supported by tight supply in the second quarter and robust domestic demand in the third quarter.

In Asia, PVC prices are on an uptrend this month on the back of gains in China’s domestic market, which is in tight supply of the carbide-based material.

Northeast Asian suppliers have raised their offers for ethylene-based PVC, targeting a $30-60/tonne price hike for September-delivery cargoes across Asia. 

“But this does not mean that the market will firm in the Middle East, even if people talk of increases in China and India. Downstream demand is average,” a GCC trader said.

Focus article by Jeslyn Lerh and Bill Bowen

Pictured above: Plastic pipes. Polyvinyl chloride (PVC) is used in making pipes. (Source: imageBROKER/REX/Shutterstock)