Europe’s PVC rebounds from nearly 3-year lows, is it a dead-cat bounce?
The latest rebound is believed to be short-lived not only due to the lack of demand support but also due to the weak indications from Asia in particular. The bullish run that has been in place for the past few months in global markets has recently staggered as expectations turned bearish in the world’s largest PVC buyer, India, as a result of lengthier supplies and weakening demand.
Sellers seek hikes larger than the half of ethylene
PVC markets mostly stabilized in August, ending the 14-month long downturn. Meanwhile, initial hike requests for September surpassed the 50% of the ethylene hike.
Supported by ongoing run rate cuts and upstream costs, suppliers opted for increases of up to €60/ton to recover their margins after an extended period of bear market conditions. Producers also suffer from margin losses due to lower spot pricing for caustic soda amid weaker demand.
PVC up after a downturn of more than one year
Accordingly, spot PVC prices rebounded from over two-and-a-half year low as September kicked off. Before the reversal, the weekly average prices on FD Italy basis and FD NWE basis sank to their lowest levels not seen since January 2021 and November 2020, respectively.
Barring efforts to hold the market firm later in Q1 2023, PVC prices have mostly tracked a bearish trend since around May 2022. Prices had posted sizeable drops during the downtrend, with decreases of 52-54% for all PVC grades since their peak in April 2022. The pre-pandemic critical level of €1000/ton the spot market hit based on the historical data and theoretical netback calculations based on other global markets motivated sellers to seek hikes for September.
Sellers also felt the urge to hike domestic prices thanks to the reduced pressure from the import market. Import suppliers have not been aggressive in Europe as they diverted their cargos elsewhere in the past couple of months. Meanwhile, the gap between the non-European material and spot material narrowed to a visible extent. US PVC was heard at €930-950/ton DDP, while South Korean K58 was offered at €980/ton DDP, 60 days.
Assessments in West Europe stood at €910-990/ton for K67-68, €930-1010/ton for K70 and €920-1000/ton for K58 and K64-65, all on FD, 60 days basis. In Italy, prices were assessed at €990-1070/ton for K67-68, €1010-1090/ton for K70 and €1000-1080/ton for K58 and K64-65 with the same terms.
Will initial hike requests be fully absorbed?
Some participants are sceptical about the absorbability of increases larger than 50% of the ethylene hike, considering the state of demand. Although some sellers reported seeing slightly better buying interest, the overall buying sentiment remained below average. It will be hard to see hikes beyond €30-35/ton, as a trader put it. Meanwhile, some players argue that the market may not even digest any hikes in September.
Indeed, derivative sectors from pipe to construction have been buckling under economic downturn. Converters buy only to cater their needs amid the weak performance of the pipe and construction sectors despite favorable weather. The end of the high season will put further strain on business activity.
Run rate cuts deepening to 35-40% at PVC plants will remain in place as long as demand remains sluggish. Producers aim to manage their stocks and have no intention of ramping up rates unless export demand grows. Although regional sources continue to hike their offers to the export markets, PVC hikes in nearby Türkiye failed to work amid mounting resistance from buyers for prices at or close to the $950/ton CIF mark.
Uptrend seems likely to be short-lived
Lower-than-usual demand may outweigh other supportive factors including the energy market retaining its strength towards year-end. That is to say, the recent rebound may prove short-lived once seasonal activity also slows down, let alone the fact that Asian PVC markets have lost some ground recently amid ample supply seen for US and Chinese PVC.
The spillover impact from a potential softening in other global markets will eventually affect Europe’s PVC markets as more US cargos may be diverted to Europe in case of the continuity of low requests from Asia.
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