Will PVC prices sustain in Asia as demand from China heads for seasonal downturn

20-Oct-09

The recent surge in crude values to one-year highs past US$76 is sufficient stimulus for ethylene to rise and pull PVC prices along the same direction. Despite an increase in feedstock costs, PVC prices could moderate or even reduce amid unenthusiastic demand and sharp competition among sellers. PVC prices have been on a general downward trend since mid August amid softening demand, along with weaker values of feedstock ethylene. Last month, PVC spot values fell 3% to around $855/ton CFR China Main Port (CMP), as per ICIS pricing. Suppliers will be reluctant to slash offers at a time when ethylene costs appear to be rising. In fact, several players expect that if crude continues its rebound to US$80, a very sharp increase in PVC values will be witnessed. Also, rising PVC futures at the Dalian Commodity Exchange could also lend support to selling sentiment. November contracts had risen 4% over the past two weeks to settle at levels of US$963/ton. However, several bearish factors could pull down PVC prices to levels of US$800/ton CFR CMP. These include an impending seasonal downturn in PVC demand in China. The upcoming winter season in November is expected to force PVC pipe makers to either cut their operating rates or shut down their plants completely, which would severely dampen demand. Competition among sellers could also lead to price cuts -US PVC producers typically embark on an export drive towards year-end in an effort to lower their inventory levels. Also few Asian PVC suppliers who failed to sell their October allocations are expected to accelerate sales effort in November. Also the increase in PVC futures values at the DCE, has been chiefly attributed to speculative excesses which would not be mirrored in the physical markets.