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PVC prices flat for 2nd straight month in Italy and West Europe

by Manolya Tufan - mtufan@chemorbis.com
  • 15/02/2024 (10:22)
In Europe, PVC markets remained unresponsive to the logistics disruptions and soaring freight rates amid the Red Sea turmoil, indicating stability for the second straight month in February. Pricing policies were stable as mediocre demand counterbalanced supply chain disruptions, leaving no room for margin recovery despite earlier plans.

Still, players are concerned about the ripple effects of the Red Sea diversions, keeping imports out of the market. Despite recent corrections, global ocean freight rates stand well above the pre-crisis levels. That is to say, the cost of imports will be higher amid elevated freight rates, disrupted supply chain and firming in other major global markets. Players discuss whether or not these factors will help changing the supply-demand dynamics next month.

PVC hovers at around 3-year low

Weak demand conditions have no doubt prevented suppliers from seeking increases despite low margins. Prices nonetheless stabilized at a 3-year low for the same reason as producers try to avoid further margin erosion after a prolonged downtrend stretching as far back as May 2022. Despite efforts to halt downturn from time to time, spot PVC K67-68 prices have been on a relentless downward trend for more than more than one and a half year.

As can be seen in the graph below, prices stand at their lowest levels in more than 3 years. Prices in West Europe even moved below the pre-pandemic levels in some cases.

FD–Italy–NWE–PVC–K67

Low consumption remains an issue

The supply-demand imbalance persisted despite run rate cuts to cope with the higher energy costs in Europe. The main culprit behind the unfavorable fundamentals was the demand collapse amid high interest rates throughout 2023.

PVC supplies are balanced with the slow demand as sellers have not reported brisk sales, even though demand has been slightly better than January. Some buyers reported slightly better demand amid increased order entries, which were as a hedge against potential hikes and had nothing to do with robust derivative demand. Purchases remained cautious, considering the low consumption of construction applications including cables, pipes and window profiles.

Eyes are locked on ECB’s rate decision as some participants share more optimistic comments compared to last year. A major market source said, “We expect to see a change in the market in line with the easing pressure on interest rates.”

Sellers: Reversal seems likely in March if demand returns

Despite the bleak scene, regional suppliers are contemplating to recover their margins as soon as market fundamentals improve given profitability issues they have been grappling with since H2 2023. Producer margins are in negative territory, which prompts some suppliers to plan PVC hikes for March regardless of the next ethylene settlement. The ethylene outlook is firm for the time being amid higher crude oil prices and lower run rates at refineries during Q1 2024.

Suppliers may focus more on the export markets, where prices are already on an upward trajectory. In Türkiye, European K67-68 deals last stood at around $880-900/ton CIF, cash no duty. Meanwhile, a regional source said, “We expect the market to gain further ground and settle at $900-930/ton CIF next month.” In Egypt, European offers for limited volumes hit $920-930/ton on CIF terms this week.

Players are focusing on how seasonal activities will unfold as a rebound can only be possible in case demand improves significantly. A seller confirmed, “We are not sure if prices will rise. It will depend on demand. Demand has barely changed despite firmer voices for March as we still struggle to sell.”

Less imports to support local sellers

Lower import availability has not caused any jitters among buyers so far in February, who sit on comfotable stocks given muted demand or source their needs from the local market. Yet, dwindling supplies amid waning interest for imports and supply snarls will support local sellers going forward.

US shipments are on hold because of higher FAS Houston prices as well as the repercussions of the Red Sea attacks, not to mention the hesitancy among buyers given the ongoing probe for this origin. US PVC offers in the distribution channel have been also sporadically reported this week, with sellers awaiting for fresh guidelines from European suppliers for the upcoming term. Existing stocks are not considered comfortable as players have been shunning US imports, meanwhile.

A trader reported that fresh offers from the US are projected to be higher amid higher logistics costs, even though production costs are lower there. Elaborating further, he added, “Sellers may prefer to wait for European offers before offering US material. New offers should be higher.”

Meanwhile, Egyptian and Asian PVC supplies were also disrupted amid shipment backlogs and longer transit times. A seller said, “We did not see offers from Taiwan, while some en-route volumes saw delays. Arrivals from Egypt are expected in April.”
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