VCM dips in Asia as ethylene, PVC weaken

Spot VCM prices in Asia have begun to move downward after resisting the pull of the declining upstream ethylene and downstream PVC prices for some time, as per Chemorbis. This reduction in VCM prices will help Asian PVC producers shore up their margins after they had been forced to offer below cost levels so as to attract buying interest.For much of the second half of May, Asian VCM sellers steadfastly stuck by their original price nomination for the month even as the sovereign debt crisis in Europe along with mounting concerns over the overall health of the global economy sent prices throughout the global petrochemical markets into a downward spiral. Since the middle of May, upstream spot ethylene costs have plunged by nearly US$325/ton in Asia, driven lower by poor buying interest and weaker crude and naphtha costs. Spot ethylene prices in Northeast Asia have only recently begun to stabilize after several major steam-cracker operators in the region threatened imminent production run cuts should prices remain at their current depressed levels. Downstream PVC prices have also witnessed steep declines over the past few weeks. After opening their June business with prices close to their May done deal levels, major Asian producers were forced to agree to consecutive reductions on their June offers before settling most of their business for the month at prices US$30-50/ton below their May done deal levels. Traders active in the region report that Asian PVC prices are still facing downward pressure as sellers are being pressured to agree to even further discounts in order to secure deals as large amounts of competitive deep-sea American cargoes are being offered to the region. Concerned about their ability to reach their monthly sales targets, a major Thai producer revised their June offers downward by US$80/ton earlier this week, while the done deal levels reported by traders in Southeast Asia have declined nearly US$70/ton over the past two weeks. The cumulative effect of these decreases in both upstream and downstream markets eventually took its toll on prices in the Asian VCM market. After refusing to adjust their offers throughout most of the month of May, Asian VCM sellers conceded to a US$50/ton downward revision on their prices towards the end of last week. Further reductions have occurred in the market this week, with deals for June VCM being reported at prices US$25-30/ton below last week’s revised offer levels and US$75-80/ton lower than producers’ initial nominations for the month at US$800-805/ton CFR China. The decreases seen in Asian VCM prices are expected to help relieve some of the mounting margin pressure being experienced by the region’s PVC sellers, many of whom had registered complaints of the fact that the price cuts they were being forced to agree to were not being reflected in their feedstock costs. A number of PVC producers in Southeast Asia, where most PVC producers are not integrated and therefore need to purchase VCM, reported that they had been forced to reduce their offers below their cost levels over the past two weeks in order to keep themselves active in the market.