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Heating competition pushes European PVC down after 2 months

by Manolya Tufan -
  • 21/05/2024 (01:52)
The modest recovery seen in European PVC markets proved short-lived as prices reversed direction amid weak fundamentals this month. Producers face the conundrum of heating competition in response to waning demand versus high production costs. Prices saw different sizes of drops after a 2-month long hiatus, during which PVC sellers failed to achieve any margin expansion, even though earlier expectations had told another story.

Competition heats up inside

Despite extremely tight margins, some producers conceded to special prices in a way to align with the rest of the market. Although early May expectations were calling for stability, lethargic demand outweighed other supportive factors including high conversion costs or the tight supply outlook in the import market given the European Commission’s impending decision on anti-dumping duties.

Decreases varied in size, from €5-10/ton to €30-50/ton depending on the customer profile and starting level, but mostly surpassed the half of the ethylene’s outcome. Prices for all PVC grades were at around mid-€900s/ton on the bottom ends of the ranges in Italy. In West Europe, prices on the low ends were at or above mid-€800s/ton FD, 60 days.

Unsupportive supply-demand dynamics were blamed for May drops, with accumulating stock levels putting pressure on sellers and reinforcing the fight to capture any limited demand. Participants reported aggressive spot offers for additional quantities, proving the sales pressure among regional sellers. Apart from low regional demand, poor export sales also contributed to the accumulation of stocks.

A distributor remarked, “Only a few customers accept buying extra volumes below €900/ton as they do not need them. Plus, they do not expect major price variations in June.”

The demand conundrum

Demand lagged behind expectations, defying seasonal patterns, while converters continued to report insufficient order entries. There is ongoing competition in the downstream segments as well, with converters cutting prices of final products to boost sales.

The construction sector signals no recovery for the near term amid high inflation. Confirming the fierce competition, a pipe maker said, “There is a slowdown despite the high season. High costs prevent people from building new houses or renovating.” Cable makers also blamed high inflation for weaker order entries and aggressive end pricing.

Export markets are also weak

Nearby markets including Türkiye and North Africa failed to stage an uptick in demand following the Eid al-Fitr holidays. Long supply amid weak global demand and high interest rates paved the way for visible drops in export prices.

A producer source said, “Demand remains an issue in Türkiye amid high inflation and parity issues. Plus, there has been a strong competition among import suppliers.”

The scene was similar in North Africa, where US PVC prices stood at aggressive levels. Indeed, slight hikes on Chinese PVC in response to soaring freight rates were met with raised eyebrows in Egypt amid the stiff competition between the US and European cargos.

European PVC prices were reported as low as $800-820/ton CIF, cash no duty both in Türkiye and Egypt.

Where do we go from here?

Although import volumes have been on the decline due to the ongoing probe, there have been no supply concerns given more than comfortable availability inside Europe.

European buyers focus more on the local markets instead of sourcing from the US. They have been shunning from US PVC not to be caught on water, with their eyes locked on the impending decision.

Reduced imports from the US and Egypt will support local suppliers, while players do not expect a major disruption to the supply levels that can affect production at the converter level. Rather, this move will help balance supplies amid weak global demand.

There will be no room for margin recovery even in the case of reduced import volumes unless demand starts to flourish. Whilst current margins are unacceptably low for producers considering flat soda prices, upstream volatility adds to the scene. June monomer contracts may settle with decreases, albeit in modest amounts.

It remains to be seen if the Taiwanese major’s June hikes to Asia will support the sentiment in other PVC markets, considering the supply glut and approaching rainy season. As for the longer run, China’s move to boost its property sector may provide leverage to the market.
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