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European PVC market heads for a new peak in November

by Manolya Tufan - mtufan@chemorbis.com
  • 29/10/2021 (03:13)
PVC markets across Europe have been hovering around record highs for multiple months following the longest rising streak ever. Players are bracing themselves for renewed hikes for November, which will push the continent’s PVC markets to a new peak.

PVC set to rise for 18th straight month

PVC prices have been on an uptrend since June 2020. This 17-month rally indicated the longest rising streak in Italy since ChemOrbis started keeping records in 2008.

Europe’s PVC markets are to extend their gains into November amid bullish factors including persistent tightness, better than anticipated demand and rising raw material and utility costs. Meanwhile, ethylene contracts are expected to settle with hikes amid firmer naphtha prices and spot gains. Although initial expectations were calling for €50-70/ton, players have shared hike projections of €70-90/ton very recently.

Others likely to follow Kem One’s surcharge decision

Kem One has been the first producer to issue an energy surcharge of €110/ton for PVC and caustic soda as of October 1st, while the company also took some precautionary measures to protect its activities amid dramatically higher energy costs. A source from the producer noted, “Many energy-intensive companies in thermoplastics, chemicals and metals have already decided to reduce their production rates to mitigate the outstanding energy bill that we are suffering. Kem One, with energy expenditure exceeding now 25% of its turnover, is trying to limit the bill by slowing down its production of chlorine as a safeguard measure, until the prices of energy revert to more reasonable levels.”

Apart from Kem One, a different West European producer mulls over applying a surcharge. Yet, this news was not directly confirmed by the company at the time of writing.
Suppliers may decide to apply hikes beyond the potential ethylene hike, bearing rising utility costs in mind. Hence, PVC prices may post hikes of up to 3-digits next month.

Europe yet to catch up with the uptrend in other markets

PVC markets in Italy and West Europe have lagged well behind the uptrend in other global markets which mostly rely on imports. European markets trade below Turkey, India and Egypt’s import markets, as can be seen on the graph below.

FD – Italy/NWE – PVC – K67-68– Turkey– CIF–Egypt – India

According to the weekly average ChemOrbis data, Europe’s discount to Turkey’s duty-free import market widened to around $470/ton. Despite this week’s sharp downward corrections, Egypt’s import K67-68 market still trades $305/ton above Europe, which marked the largest discount since late April. Europe’s discount to India reached $165/ton, meanwhile.

Regional producers think that prices have further room to go up, considering European prices should carry a premium over other markets under balanced conditions.

No relief in sight

Supply/demand remains unbalanced as demand far outpaces existing capacity. Several European producers have yet to lift their force majeures amid lingering disruptions related to logistics operations or raw material procurement. Although regional capacity will partially return after the end of turnarounds, producers need to rebuild their stocks that have been chronically low.

Buyers are supposed to rely on regional availability as import volumes may remain limited in the following months amid logistical hurdles and higher netback regions. Indeed, players reported that buyers are willing to increase their contractual offtakes as 2022 discussions went underway after spot markets have borne the brunt of supply issues during 2021.

Months of backlog orders at the converter level were cited as one of the main reasons behind better than expected buying appetite. With low stocks on the producers’ side, buyers’ requirements for extra volumes can be barely met. Needless to say, buyers’ stocks were also running low amid tightness.

That is to say, demand may remain strong despite record-high price levels, which are likely to reach another all-time high in November. As for the medium-term, players reported, “Should PVC prices continue to hit fresh highs, some converters will switch to other products particularly when end customers stop buying.”
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