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Europe continues to defy global PVC trend

by Manolya Tufan - mtufan@chemorbis.com
  • 19/01/2022 (03:06)
PVC prices across Europe have remained unfazed by the broader downtrend seen in global markets including India, China, Southeast Asia and the Middle East. European markets remained stable for another month, retaining strength at an all-time high amid a slew of factors.

Prices plateau at record highs

Spot PVC prices were mostly rolled over month over month, which has been the second straight month following the longest rising streak that lasted 18 months.

A few converters reported that regional producers applied hikes varying in size in the contract market. This move was to realign with the rest of the market, where prices are much higher. Meanwhile, rising energy costs were another reason behind January hikes in the contract market.

Fundamentals still unbalanced despite recent ease in supplies

More players confirmed that overall availability has improved slightly on the back of arriving imports particularly from Egypt as well as waning demand. Regional availability is still limited despite lifting of the force majeures, while participants point to the maintenance turnarounds from March onwards.

Although there have been healthy order entries, the motivation behind purchasing activities was due in part to backlog orders at the converter level. Unlike in the past months, converters were buying on a hand to mouth basis instead of building stocks beyond their needs. This was attributed to the buying fatigue amid inflated price levels within the bloc and other challenges that downstream companies need to deal with.

European PVC boosts premium over global markets

While Europe mostly stabilizes at its peak, the rest of the global markets are pulled down by bearish developments. Accordingly, prices in West Europe have boosted their premium over the import markets of Turkey, India, China and Southeast Asia.

Europe’s PVC market normally trades at a premium over other global markets. This is because import prices on CIF, cash terms do not include any customs clearance and inland transportation costs, while prices on FD NWE basis are for prompt cargoes including all duties if applicable and delivery cost to buyers’ plants.

FD – Nothwest Europe –PVC– China – India –SEA–Turkey

As can be seen in the graph above, the US dollar equivalence of spot K67-68 prices on FD NWE basis have been trading above India’s import market since around early November and the gap widened to around $500/ton. The gap between Europe and China/Southeast Asia has been wider at around $650-700/ton.

Meanwhile, Europe regained its premium over Turkey, where duty-free import levels fell by 22% from early November to January. Prices on FD NWE basis started to trade above Turkey from early December, while the gap widened to around $165/ton early this month.

Will energy costs and shipping snarls delay the long-expected price relief?

Considering juicy netbacks Europe offers, players think that more import suppliers may divert their cargoes to the bloc as long as global weakness persists. The majority of players think that European markets may retain strength in the short term due to ongoing shipping snarls and other Covid-driven setbacks.

A buyer opined, “PVC prices may hover around their peaks in February and they may retreat in March, when imports are supposed to arrive. Stagnancy in China may lead to more imports from Asia.”

More importantly, regional producers may not succumb to the downward pressure as energy costs show no signs of abating and Brent crude oil recently hit a 7-year high. European ethylene prices currently stand at their highest level since March 2012, according to ChemOrbis Price Wizard. Spot prices added to their gains as cracker operating rates were reduced to tackle increased production costs.

A major market participant highlighted that the impact of still-high energy costs on resin prices remains to be seen in February-March. Elaborating further, he said, “Energy costs are supposed to remain high until Q2 as the need for gas will be high during winter.”
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