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European PVC pricing offers mixed bag for September

by Manolya Tufan -
  • 08/09/2022 (02:42)
PVC players were shattered by spiking energy costs in response to gas flow suspension from Russia. Most PVC suppliers started to voice their reluctance to issue discounts at a time when production costs soar and run rates are reduced. With lower consumption remaining a major pressure point, markets have seen divergent pricing policies.

PVC is between a rock and a hard place: Ebbing demand vs surging costs

Initial pricing policies for September vary depending on the supplier.

It’s crucial to highlight that Europe’s PVC markets are still elevated as prices have seen only moderate drops since May, when a 2-year long uptrend was snapped. This also shows why the correlation between the region and global markets has been detached for a long while. Nevertheless, producers have either applied rollovers or even some hikes recently, disregarding the €120/ton lower ethylene settlement. This move came in response to the squeezing margins.

European gas prices sharply jumped as of Monday after Gazprom indefinitely suspended natural gas flows through the Nord Stream 1 pipeline.

A producer source noted, “We have decided to issue rollovers due to higher energy costs as we are operating at an almost break even point. Demand will not improve even if we reduce prices.”

Taking a different approach, a regional producer both applied the 50% of the ethylene drop and an energy surcharge, which ended up with increases.

Apart from rollovers to increases, decreases of €60/ton were also seen, considering lower resin consumption. Buyers skip purchases from their regular suppliers as they can obtain discounts in the distribution channel with rumblings of even lower prices for non-European origins.

US PVC heard at €1000 DDP, at least €700 below local European origins

US PVC K67-68 was reported at €1000-1040/ton DDP, 60 days (including all applicable duties and inland transportation) amid deals on the low end. Egyptian K67-68 was at €1100/ton with the same terms. In any case, these prices stand well below the spot ranges for European origins centering at around €1700-1800/ton FD, 60 days.

However, producers do not seem to be concerned about low priced import cargoes as they underline the fact that import volumes are not sufficient to meet local demand. A major participant claimed, “Imports currently meet around 10% of buyers’ needs.”

The vicious circle of weak demand and run rate cuts

Players have been increasingly skittish, stuck between wild swings in utility costs and visibly lower demand.

Europe’s energy crisis is deepening as natural gas flows through the vital Nord Stream 1 pipeline were halted, with Russia blaming western sanctions for the ongoing malfunctions.

Europe faces the risk of blackouts and rationing if Russia chokes gas supplies further. As high energy costs are here to stay, the region slides towards recession.

On the demand front, construction, gardening and furniture sectors came to a standstill. Higher utility costs prevent converters from applying discounts on their finished products, which in turn pave the way for low order entries. A compounder said, “Our customers are not interested in placing orders amid their comfortable stock levels. If our order entry doesn’t show an uptick, we will cut volumes.”

Most producers are reducing production rates mainly due to the lack of demand in general, with run rate cuts reaching beyond 20% or more in some cases. They are aware of the fact that transacted volumes will be small due to the structural damage in demand. “We expect European producers to run at lower rates. Another solution would be exporting PVC,” said a large trader.
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