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European PVC set for July hikes, is the peak nearing?

by Manolya Tufan - mtufan@chemorbis.com
  • 21/06/2021 (03:25)
European PVC players brace themselves for another round of hikes in July, which would mark the 14th straight month of hikes. Europe’s PVC market has taken no respite from the longest rising streak since ChemOrbis started to keep records in 2008.

There are market talks that PVC prices may be nearing a peak in July amid supply tightness that shows no signs of abating on one hand and the weakening in other global markets on the other.

PVC to hit fresh all-time highs

With the market’s chronic supply issues, spot PVC markets hit an all-time high for the first time in January this year. It is no surprise that prices hit fresh record highs since then as the bullish run entered the 13th month in June.

According to the weekly average data from ChemOrbis Price Index, the cumulative PVC hikes have reached 110-112% in Italy and 105-108% in Northwest Europe since the upturn kicked off in early June 2020.

Europe boosts its premium over other global markets

Regional markets have been unfazed by the downtrend seen in other global markets including Turkey, Egypt and Asia. The July outlook in these markets is also gloomy, with the slow recovery in India and Eid-al Adha holiday in Turkey and Egypt. Asian PVC players expect to see decreases from a Taiwanese major for July amid unpromising downstream demand, as a side note.

Europe’s spot markets have boosted their premium over other markets amid relentless hikes.

As of late May, spot K67-68 prices in Italy/Northwest Europe have regained their premium over Turkey’s non-dutiable import K67-68 market after 10-12 months. The US dollar equivalence of average spot K67-68 prices in Italy trades $175/ton above Turkey, while prices in NWE carry a premium of $80/ton over Turkey.

Meanwhile, spot K67-68 prices on FD NWE basis carry a premium of $390/ton over China and Southeast Asia’s import markets. India and Egypt’s import K67-68 markets are currently trading with respective discounts of $290/ton and $210/ton over spot prices in Northwest Europe. Italy’s K67-68 market also trades above China ($485/ton), India ($390/ton), Southeast Asia ($490/ton) and Egypt ($310/ton).

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

Arbitrage opportunities are here to stay if Europe and other global markets continue to move in opposite directions.

Nevertheless, import volumes are still scarce as logistical hurdles and sky-high freight rates deter most buyers from purchasing distant cargoes. Meanwhile, regional shortages forced some players to take the risk of paying high prices to secure import cargoes.

Supplies may start recovering in July

Supply situation across the region even got worse during June due to a combination of new production issues and healthy demand.

Moving into July, overall PVC supplies may start to improve in line with the lifting of regional force majeures. Still, the supply-demand imbalance reigning the market for quite a while is unlikely to be resolved as soon as next month as producers will need to rebuild their stocks.

In early June, Inovyn lifted the force majeure on its K70 supplies from Tavaux, France. Vestolit also lifted the force majeure from its Germany plant as of mid-June. Shin Etsu is supposed to lift the force majeure from its Pernis plant in H2 June. However, Kem One, Vynova, Shin Etsu and CIRES were on force majeure during the week ending June 18.

Demand surpassess overall supply levels

Suppliers plan to issue fresh hikes based on the assumptions that supply-demand imbalance would prevail. Supply continued to fall short of demand amid ongoing tightness.

According to suppliers, order entries are healthy thanks to the high season. Buyers ask for additional volumes but to no avail, with allocation cuts remaining in place amid low producers’ stocks. Some converters had to lower run rates amid a dearth of material.

“Buyers struggle to cover their requirements in general. But they are gobbling up available resins amid a firm demand outlook. Some customers will reduce the duration of their summer shutdowns,” regional sellers noted.

Suppliers mull over hikes beyond C2

Speaking of ethylene, July contracts are expected to settle with increases amid multi-year high crude oil and naphtha prices. Needless to say, regional PVC producers have in mind to seek increases larger than the potential ethylene increase, supported by strong fundamentals.

Players find a sudden reversal unlikely within the bloc before supply levels normalize. According to some, prices may reach a plateau during August holidays as slowing downstream markets would allow producers to refill their stocks.
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