Bearish outlook in China’s domestic PVC market

After following a mostly steady trend in June, domestic PVC prices started the month of July with price decreases, as per Chemorbis. Ethylene and acetylene based PVC prices decreased by CNY140-150/ton (US$21-22/ton) on average in the first week of the month, according to ChemOrbis Price Index. This week both markets have witnessed additional declines of CNY100-200/ton (US$15-30/ton). Depressed demand is the main factor behind the consecutive price decreases, with both regional producers and resellers conceding to price decreases in an attempt to promote their sales. The poor state of demand has forced many producers to trim operating rates as they face obstacles in coping with their mounting inventory pressure. Producers are also complaining of steep financial losses on their PVC business. Players in the region reported that most acetylene based PVC producers are currently running their plants at 30-70% while ethylene based PVC producers are working at around 40-70% of their full capacity. The decreases have occurred regardless of the fact that upstream carbide feedstock costs have remained persistently firm with theoretical production cost calculations based on current carbide prices suggesting that acetylene based PVC producers are already operating at prices below their cost level. However, acetylene based PVC producers are still willing to give discounts on their offers in order to liquidate their inventories. In response to falling local prices, some converters have started to engage in purchases this week albeit on a needs only basis as most still expect to see further price cuts in the coming days. Facing slow end product businesses during the summer months, buyers also reported that they have felt forced to cut their operating rates by another 10-20%, with most converters placing their operating rates at 40-60%. Distributors offering cargoes in the local market are also holding a pessimistic view regarding the direction of the market, commenting that they do not expect demand to improve in the near term. Bearish sentiment in the domestic market has also had an impact on players’ expectations for August import offers to China. After major Asian producers closed their July business with relatively smaller decreases than their initial price reductions on the back of their improved sales, several players were expecting producers to attempt price hikes for August as well. However, players are growing increasingly skeptical about producers’ ability to maintain their August price hike targets to the Chinese market given steadily weakening prices in the country’s domestic market.
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