Modest PVC rebound set to prevail in Italy and West Europe

The European PVC market experienced stability to modest increases after two months of declines in July. A confluence of shifting demand patterns, potential supply constraints and strong feedstock costs driven by production issues in the region has shaped the outlook for the months ahead, with players finding larger hike attempts for September more feasible as markets move through the summer months.

EU suppliers aim to recover lost margins

July PVC deals have been closed with rollovers to small hikes of €10-20/ton, displaying a mild reversal from multi-year lows. Producers are focusing on recovering margins lost in previous months, emanating from the competitive pressure from imports.

As can be seen in the graph below, spot K67-68 prices both in Italy and West Europe rebounded from their lowest levels since September-October 2020.



Aug expectations call for rollovers to modest hikes

According to participants, a similar pricing policy may be seen in August, with fresh ethylene settlement standing €20/ton above July. Suppliers intend to approach the market with increases beyond the half of the ethylene hike to achieve their long-awaited margin recovery targets. Plus, operating at reduced rates increases production costs, eating further into their margins and encouraging them to sell more volumes at higher levels.

However, players do not find it feasible to see larger hikes than the half of the ethylene passing on deals amid persistent buyer apathy and the summer lull. “Margin recovery may not come as early as August as most converters will shut their plants for a couple of weeks. Their inventories seem adequate to meet current demand. August PVC deals may see €10/ton increases, if not rollovers,” a player highlighted.

Adding another layer to the discussions, a converter underscored that larger price hikes could be risky as cheaper alternatives for end-products could flow into the bloc from other global markets.

A more pronounced shift likely from September

The European market faces supply challenges influenced by several factors. The absence of US and Egyptian PVC due to the provisional anti-dumping duties, along with higher freight rates from Asia, has exacerbated supply concerns. Mexican PVC is trading on par with European prices due to the reduced production from a lack of rainfall.

Domestic production across the bloc has been disrupted by lower rates, planned shutdowns and a mothball as a part of the rationalization efforts. European producers are working to manage costs amid tight margins. Nonetheless, this has been offset by reduced polymer consumption. Should suppliers limit their August quotas amid constrained supply and high operational costs, this would potentially set the stage for more significant adjustments in September.

August demand will be calmer as buyers have closed their deals beforehand. Buyers may limit purchases or skip acquisitions via leveraging existing stockpiles cautiously, contributing to a subdued market environment. The construction sector, a significant consumer of PVC, is expected to remain muted due to a lack of investment in the coming months.

With restocking efforts, activity may pick up in September. Producers are likely to revisit price hikes, with the potential for more significant increases due to tighter import supplies and a recovery in demand.