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Will European PVC take a breather from 9-month downtrend in February?

by Manolya Tufan -
  • 23/01/2023 (09:05)
Regional players have been wrapping up their January PVC deals mostly with reductions of €50/ton, matching the half of the ethylene drop. As the month draws to a close, voices for a potential stabilization in February start to emerge on the sellers’ side after 9 straight months of drops.

Lower caustic soda, drying up of import offers, firmer ethylene expectations and global uptrend seem to have emboldened sellers recently. Although a nascent recovery in buying sentiment was noticeable as 2023 started, the supply-demand imbalance remained intact despite run rate cuts. Players are now discussing whether or not suppliers will be able to hold onto their offers in February, with lower energy prices and weak downstream markets.

Spot K67 lowest since April 2021 despite being still significantly above pre-pandemic norms

According to ChemOrbis Price Index, the weekly average of spot PVC K67 prices have posted cumulative drops of around €600/ton or 30% since their reversal in May 2022 and hit their lowest levels since April 2021. This compares to a trough-to-peak increase of €1300-1400/ton or 188% between June 2020 and April 2022.

FD Italy–NWE–PVC–K67–Europe

Imports dry up amid global firming

A limited number of import offers showed up this month, while they were up month over month in sync with the global bullish trend and delivery delays. Imports continued to offer a competitive edge against spot ranges, even though both markets moved in opposite directions. Yet, the gap between local and import markets narrowed from previous highs of €700-800s/ton by mid-Q4.

Fresh offers from the US rose notably compared to the late Q4, while the arrival of US cargoes that were previously bought at low levels continued to heap pressure on the market sentiment.

Meanwhile, delivery issues from Egypt pushed prices for this origin higher. A distributor said, “There won’t be any deliveries from Egypt before March due to the logistical issues at a producer.”

US K58 and K67-68 were offered at €1200/ton on DDP, 60 days basis in Italy. Egyptian K58 was dealt at €1220/ton with the same terms. Egyptian K67-68 offers stood at €1020-1050/ton on CIF, 60 days basis. These levels stand more than €150-250/ton above December levels.

Spot prices have been last reported at €1370-1460/ton for K67-68, €1400-1490/ton for K70 and at €1380-1470/ton for K58 and K64-65, all on FD Italy, 60 days basis. FD NWE prices stand roughly €50-60/ton below Italian levels, meanwhile.

Europe loses premium over global markets

Europe continues to carry a premium over China, Southeast Asia and Turkey’s import PVC markets, while the gap between Europe and other markets has receded after tracking divergent paths in January.

ChemOrbis Price Index showed that European PVC K67-68 prices stood above China ($580/ton), Southeast Asia ($610/ton), India ($530/ton) and Turkey ($520/ton) in the week ending January 20. These levels indicated respective drops of $370/ton, $350/ton, $420/ton and $390/ton since mid-to-late November.

FD NWE–Turkey–SEA–India–China–PVC–K67–Europe

Lower soda, higher C2 support sellers; what about energy costs?

Spot caustic soda prices have been falling sharply in the past couple of months, which discourages producers to produce PVC. Still, overall availability is defined as comfortable despite production cutbacks across the region and feedstock limitations. Producers run at 80% capacity or lower to support prices.

Apart from lower caustic soda prices, higher spot values for ethylene pave the way for increase expectations for February contracts. With the support from this, sellers may avoid further drops in the market.

When it comes to utility costs, falling gas and electricity prices keep players cautious in Europe. According to media sources, regional gas storage levels are above 5-year average. Even though prices are historically high, they are standing at a 16-month low. Dutch TTF gas futures, the benchmark European contract, was trading around €60 a megawatt hour on January 20.

Downstream consumption may prove an obstacle

PVC suppliers aim to avoid further losses, pointing to global uptrend, lower caustic and higher ethylene prices. Nevertheless, lower consumption in derivative markets may pose an obstacle for a stabilization in February. Recent uptick in demand was attributed to the restocking activities at the converter and consumer level after the Christmas break. Derivative sectors remain sluggish due to the cautious consumption behaviours amid recession fears.
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