Poor Demand, Rising Supply May Halt Asia PVC Rise
SINGAPORE (ICIS news)--Poor downstream demand amid rising supply of Chinese polyvinyl chloride (PVC) could slam the brakes on PVC’s price uptrend in Asia, traders and producers said on Monday.
PVC prices have been rising over the past 12 weeks with no significant pullbacks, but there were concerns that speculative buyers may retreat to the sidelines at the first sign of a reversal in the trend, market sources said.
Prices of PVC imports into China fell $10-20/tonne (€7.80-15.60/tonne) to $670-700/tonne CFR (cost and freight) at China Main Port (CMP) last week.
“Traders have been the ones buying cargoes and driving up the prices in recent weeks. Downstream demand has not picked up by much in the meantime, and now both buyers and sellers are starting to react,” a Chinese PVC producer said in Mandarin.
The Chinese economy was slowing faster than originally expected, with fourth quarter GDP growth at just 6.8%, the slowest pace recorded in seven years, indicating a poorly performing manufacturing sector.
Chinese PVC traders had continued to snap up cargoes in January, banking on a pent-up, post-lunar new year holiday demand from end-users who had been running down their inventories.
But when the demand failed to materialise the speculative buyers were forced to become aggressive sellers, exerting strong downward pressure on prices, industry sources said.
“Right now, there is little speculative demand, little end-user demand but high selling interest. It’s hard to see what other factors are left to push the prices up,” a northeast Asia PVC trader said.
The issue is compounded by a rise in production rates among China’s domestic carbide-based PVC plants, industry sources said.
Most of these plants had been idled since late last year due to poor economics but the recent rise in PVC prices and the decline in feedstock costs have encouraged carbide-based PVC producers to either restart their plants or ramp up operating rates.
This led to some easing of the tight supply situation that had attracted domestic buyers to import cargoes.
“Carbide-based PVC plants will increase operating rates once PVC prices are above yuan (CNY) 6,000/tonne EXWH (ex-warehouse). We are already seeing various such plants increasing production in February which means there will be less demand for PVC imports,” said a Chinese ethylene-based PVC producer.
The price of carbide-based PVC in the Chinese domestic market was last week assessed at CNY6,000-6,200/tonne ($877-906/tonne) EXWH.
Prices of calcium carbide feedstock has meanwhile fallen from over CNY3,200/tonne to around CNY2,700/tonne in the past month, according to industry estimates.
Carbide-based PVC producers such as Xinjian Tianye and Shanxi Yushe have as a result increased their operating rates from just 50% in end-November to current rates of 90% and 70% respectively.
“If carbide-based PVC producers continue to ramp up their operating rates, other PVC producers will suffer even more. So in a way, it might not be a bad thing for PVC prices to stop rising-- as long as there are still margins to be made for ethylene-based PVC producers,” an ethylene-based PVC producer said.
China produces carbide-based PVC locally but imports and produces ethylene-based PVC.
PVC prices have been rising over the past 12 weeks with no significant pullbacks, but there were concerns that speculative buyers may retreat to the sidelines at the first sign of a reversal in the trend, market sources said.
Prices of PVC imports into China fell $10-20/tonne (€7.80-15.60/tonne) to $670-700/tonne CFR (cost and freight) at China Main Port (CMP) last week.
“Traders have been the ones buying cargoes and driving up the prices in recent weeks. Downstream demand has not picked up by much in the meantime, and now both buyers and sellers are starting to react,” a Chinese PVC producer said in Mandarin.
The Chinese economy was slowing faster than originally expected, with fourth quarter GDP growth at just 6.8%, the slowest pace recorded in seven years, indicating a poorly performing manufacturing sector.
Chinese PVC traders had continued to snap up cargoes in January, banking on a pent-up, post-lunar new year holiday demand from end-users who had been running down their inventories.
But when the demand failed to materialise the speculative buyers were forced to become aggressive sellers, exerting strong downward pressure on prices, industry sources said.
“Right now, there is little speculative demand, little end-user demand but high selling interest. It’s hard to see what other factors are left to push the prices up,” a northeast Asia PVC trader said.
The issue is compounded by a rise in production rates among China’s domestic carbide-based PVC plants, industry sources said.
Most of these plants had been idled since late last year due to poor economics but the recent rise in PVC prices and the decline in feedstock costs have encouraged carbide-based PVC producers to either restart their plants or ramp up operating rates.
This led to some easing of the tight supply situation that had attracted domestic buyers to import cargoes.
“Carbide-based PVC plants will increase operating rates once PVC prices are above yuan (CNY) 6,000/tonne EXWH (ex-warehouse). We are already seeing various such plants increasing production in February which means there will be less demand for PVC imports,” said a Chinese ethylene-based PVC producer.
The price of carbide-based PVC in the Chinese domestic market was last week assessed at CNY6,000-6,200/tonne ($877-906/tonne) EXWH.
Prices of calcium carbide feedstock has meanwhile fallen from over CNY3,200/tonne to around CNY2,700/tonne in the past month, according to industry estimates.
Carbide-based PVC producers such as Xinjian Tianye and Shanxi Yushe have as a result increased their operating rates from just 50% in end-November to current rates of 90% and 70% respectively.
“If carbide-based PVC producers continue to ramp up their operating rates, other PVC producers will suffer even more. So in a way, it might not be a bad thing for PVC prices to stop rising-- as long as there are still margins to be made for ethylene-based PVC producers,” an ethylene-based PVC producer said.
China produces carbide-based PVC locally but imports and produces ethylene-based PVC.
By Ng Hun Wei (source: www.ICIS.com)
