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European PVC loses premium over global markets; Oct calls for hikes

by Manolya Tufan - mtufan@chemorbis.com
  • 27/09/2021 (11:04)
European PVC markets lagged behind the firming in other major markets, some of which have broken their previous peaks amid acute tightness. Even though prices hit fresh highs, Europe’s premium over global markets has either evaporated or narrowed due to more abrupt gains elsewhere.

Import prices in major markets surpass previous peaks

According to ChemOrbis Price Index, import PVC K67 prices in India, Turkey and Egypt broke their previous peaks seen in March-April and hit fresh records in September amid deepening shipping crisis and tighter supplies.

India’s import market stayed at all-time highs despite some resistance to high-end PVC offers, widening its premium over China and Southeast Asia.

Turkey has borne the brunt of global PVC shortage due to its dependence on imports, offering the highest netback among all. In Egypt, PVC prices also went through the roof amid a lack of imports and persistent supply constraints, which were exacerbated by TCI Sanmar’s absence.

However, import PVC K67 prices in Southeast Asia and China are yet to reach their previous peaks in March-April. Meanwhile, China’s energy consumption curbs led to reduced PVC supplies, while the ripple effect from China’s energy reduction targets will be closely tracked as it has an impact both on petrochemical and manufacturing plants.

Europe starts trading below Turkey, Egypt

Europe’s PVC market had been trading at a premium over other global markets including Turkey, Egypt, China, India, and Southeast Asia from April-May to late August.

After sustaining its premium on the back of supply tightness for 3-4 months, Europe’s PVC market lost its premium over Turkey, Egypt, and India.

PVC K67-68 prices in Northwest Europe started to trade below Turkey’s duty-free import levels by the end of August, while they moved below K67-68 prices on CIF Egypt basis as of early September. The US dollar equivalence of spot K67-68 prices in Northwest Europe stood $215/ton below Turkey, while prices were $145/ton below Egypt as of last week. Meanwhile, European prices started to trade at par with import prices in India as of last week as the gap between the two has been narrowing since late July.

FD – CIF – PVC K67-68 – Europe – Egypt– Turkey – China – SEA – India

Even though the European PVC market still maintains its premium over China and SEA, the price gap has been narrowing since July-August in accordance with a steady uptrend trend seen in these markets. The gap with Southeast Asia and China shrank to $375/ton and $340/ton, respectively.

Spillover sentiment keeps Oct outlook firm

The majority of players expect PVC prices to gain further ground, citing the spillover sentiment from global firming. Prices are also likely to be supported by a strong demand in downstream markets, despite a prolonged period of all-time high levels. Still, this factor may keep potential hikes for October in check.

Sellers feel another round of hikes will be low-hanging fruits next month as they were struggling to keep up with demand and experiencing months of backlogs. Activities in the building and construction sectors may remain robust in the near term, while it is dependent on the weather amongst other things.

Rising production costs add to bullish expectations

Needless to say, soaring energy prices also put pressure on end pricing both in the upstream and downstream markets. There are multiple reasons behind the price surge, from low European energy stocks and US storms that curbed Texas gas exports, to rebounding demand as economies reopen, according to the Financial Times.

Things do not seem rosier, with expectations for bigger hikes when peak winter demand kicks in.

Kem One will start implementing energy surcharge on its PVC prices from October 1st to reflect higher input costs.

Little supply relief in sight

Last but not least, Europe is running low on PVC supplies amid planned and unplanned outages, with little relief in sight.

Inovyn declared force majeure on PVC supplies from Rheinberg, Germany on September 17. Kem One, Vynova and Vinnolit’s force majeures remained in place, while there are a slew of PVC turnarounds paving the way for reduced spot parcels. Spolana, Vynova and Kem One’s PVC plants will be offline during October for a planned turnaround.

According to the newly launched ChemOrbis feature Production News Pro, 167,000 tons of European PVC and upstream capacity have been offline in September. This figure represents a sharp fall in availability from August, with September turnarounds having clearly added to the tight supply situation. Meanwhile, it appears that lost capacity will not come back online in October.

Plants – Europe- PVC

Adding to the bullish scene has been a lack of imports from Egypt and the US amid logistical mishaps and long lead times. Moreover, import sources may prefer to divert their allocations to the higher netback regions.
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