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Will Asian PVC markets maintain firming into Q1 2020?

by Abdul Hadhi - ahadhi@chemorbis.com
by Merve Sezgün - msezgun@chemorbis.com
  • 25/12/2019 (12:04)
Having followed a mostly bearish trend in the last quarter of 2019, Asian PVC markets look set to get busier going into 2020 on seasonal factors. Plus, other broad market developments such as easing US-China trade tensions as well as higher freight costs may support prices in the first quarter.

The sentiment already firmed up for January

Import prices into India are largely stable from mid-November on CIF India basis, while prices into China have risen around 3% from late November, according to ChemOrbis Price Index. Meanwhile, prices into Southeast Asia are up 3.9% from early December.

As of mid-December, the Taiwanese producer increased its offers by $10/ton for all markets. The good response prompted the producer to increase their allocation, according to market sources.

Several other suppliers, including those for US material, have followed suit due to the ongoing firmness in China’s local PVC market, tightness across the region and improving demand in India.

Before that, the trend was mixed. November and December offers were lower across the region while October offers diverged with increases for India due the Diwali season but decreases for China.

India demand to be robust in first quarter

“Indian PVC prices should be supported until May,” a source at a Japanese producer said.

PVC requirements in India traditionally tend to improve during the first quarter as businesses aim to close their books for the year on a strong note. The fiscal year-end in India is end-March.

Around 70% of Indian demand comes from PVC pipes widely used in underground irrigation and water distribution pipes. The remaining demand comes from the construction sector, where PVC is used to make films, profiles, and insulation applications.

Construction of residential and industrial buildings tends to be in full swing and continues until May. The monsoon season starts in June and last September – during which time construction activity slows due to heavy rains while choppy seas makes shipping in material more difficult.

Recent turnarounds, winter affect China supply

In China, PVC prices have been finding support from supply-based factors, with traders reporting that US PVC prices for January indicated $30/ton increases from their most recent December offers.

Supply has been tight following the turnaround season in the November-December period. Wintry conditions going into January and February also make transporting such material more difficult across road or rail, while imports have been affected in some years by icy seas in northern ports.

Stocking up ahead of Chinese New Year, which starts on January 24 and officially lasts for a week, could be an additional factor as overseas suppliers from Taiwan will have similar holidays which limit production.

But the number of new capacities may cap any significant upside for prices further into 2020.

Some 1.8 million tons/year of new capacity is due to come on stream in China next year. Of the four plants, two are 500,000/tons year units while the other two have capacities of 400,000 tons/year each.

US-China trade thaw, higher freights may also lend support to prices

Meanwhile, the easing of US-China trade tensions may also support PVC markets by helping economic growth and increasing business activity. Earlier this year, the Organisation for Economic Cooperation and Development said the global economy would grow by 3.2% this year – the lowest since 2016 - as growth in trade flows nearly halved.

Another factor that could raise import prices is higher freight rates due to the requirement to use low sulfur fuels to power ships – which are more expensive than the high sulfur fuels being used currently – from January.

The International Maritime Organization (IMO) has mandated that ships have to fuel with 0.5% sulfur – down from the current 3.5% sulfur – as part of efforts to reduce emissions and its effect on the environment.
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