European PVC sellers between a rock and a hard place: Anemic demand vs squeezing margins

Regional PVC markets have barely changed in the ever-shifting landscape of the global markets as long-standing challenges faced by both producers and buyers continue to thwart any attempts to turn the tide. Europe’s spot and contract PVC markets receded further in June, being unfazed by the bullish scene in other outlets, while July voices are also not any better.

June marks second month of softening

Having reversed direction in May, PVC prices extended losses into the second month. Initial attempts to recover margins proved ineffective, with spot deals being closed with €15-20/ton decreases amid poor market conditions and lower ethylene outcome. Suppliers tried to keep discounts in check, citing tight margins amid high production costs, low PVC prices and weaker caustic soda prices. Price concessions were inevitable as producers aim to preserve their market share amid more aggressive offers in the market.

Aggressive spot offers have not disappeared from the market regardless of the upbeat sentiment in the global markets and reduced import availability as a result of rising freight rates. Reflecting the strain of supply-demand imbalances, reports of even lower prices may echo through the market going forward.

A player reported, “Some buyers are not in a hurry to close transactions as they believe they can get lower prices as the month wears on.”

Slim margins remain a problem

PVC markets remain stuck between a rock and a hard place as complaints about low profitability persist amidst a pessimistic demand picture.

Increased competition, high production costs, and pricing pressure from buyers amid comfortable availability continued to constrain profitability. Regional producers have been running at 60-70% rates to tackle this issue, which failed to hinder supplies surpassing demand. If not addressed effectively, players think that even temporary plant closures may ensue in the coming months as producers grapple with the harsh reality of running at a loss. Yet, this did not cause panic among buyers as stocks are ample at the supplier level.

Recently, European suppliers have boosted exports to compensate for the lost sales volumes within the bloc, aiming to recover their margins. Indeed, export prices have seen some increases in response to the soaring freight costs and active sales mainly to India.

No signs of demand recovery on horizon

As PVC is commonly used in the construction industry, reduced activity amid economic slowdown has severely hit resin consumption. Activity in the automotive sector also failed to pick up. Subdued demand and low requests make it more challenging for converters to smoothly sell their end products, which in turn reduces their purchasing volumes.

Buying interest is not moving in lockstep with the seasonal patterns as customers are placing last-minute orders and are buying limited amounts, as a converter put it.

Not only poor derivative demand but also previous purchases from the import market dimmed buying appetite. Confirming poor order entries at the converter level, a seller said, “Some buyers prefer to run their stocks down before purchasing fresh material. They are covered thanks to their earlier purchases from the import market.”

Buying patterns differ for imported goods

In Southern Europe, there has been a surge in stocks of non-European material as buyers hurried to stock up imports ahead of the provisional anti-dumping duties announced by mid-July. Conversely, buyers in West European markets refrained from import purchases mainly due to the narrower gap between the spot and import prices. Indeed, import prices were deemed unattractive amid aggressive spot offers for European material.

Little chance for reversal as supply glut looms

Hopes for a reversal in July are dimmed by high stocks on the producers’ side and weak demand conditions. The ECB’s first rate cut in five years is not expected to spur activities overnight. With most players expressing skepticism about a change in the market direction, they believe that prices may move sideways or lose further ground next month. Warying of further declines, buyers are refraining from stocking up material as they anticipate a softer trend also in July given demand challenges and soft ethylene projections.

PVC markets are at a critical juncture, grappling with a myriad of challenges ranging from pricing pressures and fluctuating demand to supply chain disruptions and provisional antidumping measures that will curb buying appetite for imports from the US and Egypt from now on. As suppliers find current PVC levels rather low and contemplate temporary shutdowns to bring the balance back, vigilance remains paramount in the months ahead.