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Asia's PVC bulls in a rain dance to upbeat freight markets, but will it last?

by Shibu Itty Kuttickal - sikuttickal@chemorbis.com
  • 27/05/2024 (17:52)
Even as strong pre-monsoon rains have started lashing southern India and the southwest monsoon itself is expected to make landfall next week, earlier than typically, PVC prices have seen an unusual rally, riding on the back of a major bull run in the freight markets.

Container freight rates have been soaring for nearly a month as news emerged that major Chinese electric car makers have ramped up exports to Mexico and Brazil since March. This was ostensibly to get around the US quadrupling tariffs on imports of Chinese electric vehicles. The car maker’s move includes forward buying, with currently space up to July totally closed, and August likely to be only sparsely available, claimed industry players.

Acute shortage of container space

This resulted in an acute tightening of container space availability and hence the surge in container freight rates. Some players in the PVC market have also apparently locked in freight rates till July/August.

The current week has seen a sharp 6% rise in the PVC import prices to India, the largest market for PVC in the world, while rose by 5% to Southeast Asia, and by about 1% to China. Last week’s CIF India assessments, with midpoint of $840/ton, and CIF Southeast Asia assessments, with $800/ton as midpoint, are both at an almost 9-month high, while CIF China prices, at $767/ton as midpoint, are at a 7-week high, show ChemOrbis price index data.

Asia_PVC_prices

Latest reports point to China/India freight rates soaring. Late last week, the rates were reported at $2,250 for 40-foot containers, working out to about $87/ton but by early in the current week, they were noted at as high as $3,350/ton, or about $129/ton.

It’s a sentiment-driven market

“PVC buying enquiries are coming in thick and fast, and we’re not able to cater to all requests,” an Indian trader of US shipments said. “We have enquiries totaling about 2,800 tons already this week alone, but we may be able to service all these. But this is a market driven mostly by the surging freight rates, that may or may not keep rising in the weeks ahead. Yet, we do expect our US principals to keep raising prices. Already earlier in the week, the price from the US was raised to $750/ton FAS Houston, from the earlier low-$700s/ton,” he said

“We’re currently hearing offers of Chinese and US offers into India at both about $920/ton CIF. Although discounts of up to $30-40/ton could be extended to big buyers, the current increase is something nobody thought will happen in the current market even early this week, with ample supplies both in China and in India,” a trader said.

“Shipments at $750/ton FAS Houston being offered at $920/ton CIF India may be reflecting a bullish outlook overall,” he said. According to the trader, the latest price works in a $30-35/ton freight rate hike at slightly below $100/ton. Meanwhile, a source at a Taiwanese producer said, “We’ve already taken orders at $900/ton CIF India.”

In Southeast Asia too, market players were aware of the rapid rise in freight rates. “The sentiment has stayed cautious, but converters and compounders realize that the freight rates have been climbing, which drove a Taiwanese major to hike prices by $20-30/ton.

Players have started restocking as they look to hedge against the freight hikes,” an Indonesian compounder said. In Vietnam, a converter said although end-product demand was weak, some tightness locally, coupled with the freight hikes, prompted the increase in PVC prices.

Bullishness in the season of monsoon

Indian players said rarely had the market seen prices surging so much just ahead of the monsoon, adding the jury was out on whether the current bullishness could be sustained.

“The monsoon has already made a landfall in Andaman Sea in the northeastern Indian Ocean. We’re currently seeing heavy pre-monsoon showers in southern India and this year we hear the monsoon will hit peninsular India in late May, slightly earlier than normally. The Indian weather office has predicted a stronger-than-usual monsoon in India this year, which should typically entail weaker demand,” said a player.

Import volumes to India and China fall

He also pointed to the lower volumes imported by India in the first quarter of the year. “We believe import volumes may keep falling as prices are a bit too high to accept, while there’s still enough supplies in the regional markets,” he said.

India’s cumulative PVC imports in the first quarter showed a significant 26% decline compared to the same period of last year at around 709,900 tons. Chinese imports have also slumped by about 48% to about 86,200 tons, but imports into Southeast Asia have risen by 48% to about 223,700 tons.

However, others said it was not clear how long the current bullish freight rates in the region would last. “We’ve heard that some players have locked in the freights for up to a couple of months, and they may like the import levels to maintain the upward momentum, but we’re worried about a situation when the freight rates start tanking,” another player said.
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