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Will bullish February expectations be toned down in Asian PVC markets?

by Shibu Itty Kuttickal -
  • 10/01/2024 (02:29)
A major Taiwanese PVC producer is expected to reveal their February offers around next week to Asian buyers, while players voice different expectations as the market has been caught between the freight issue and the highly volatile crude oil. Rising freight costs lifted the sentiment somewhat last week, fueling traders’ optimism, although a choppy energy market has recently diluted some of the hike expectations.

Red Sea bottleneck keeps US offers away amid surging freights

Traders said while US origin shipments are conspicuous by their absence after the Red Sea turmoil, shipping costs have risen by 60% or more in the case of vessels from China and the rest of Northeast Asia to Indian destinations. “The increase in freight costs would be a factor acting on import prices in the weeks ahead,” a trader based in New Delhi said. “We’ve seen freight costs rising across the Asian region, not just in the Red Sea. As for the intra-Asian sectors, freight rates have been rising even before the Red Sea issues,” he added.

The Houthi attacks on vessels in the Red Sea, which started around mid-December, continue to take a toll on container shipping, and spot container freight rates have seen steep increases. The global indexes provided by Drewry and Freightos shot up in the past week by 61% and 85% respectively. Although much of this increase was formed by the rise in spot rates from Asia to West and South Europe that use the Red Sea as a transit route, other sectors, including intra-Asia ones, have felt its repercussions.

Crude oil ebbs and flows, Asian ethylene stable

Asian ethylene prices have stayed range-bound for the past month, while support is expected by tight regional supplies and the steady gains in polyethylene prices. Ethylene producers are expected to maintain control over production costs while keeping supply tight. Run rate cuts are expected to deepen for crackers, squeezing margins.

However, crude oil benchmarks saw fresh drops early in the current week, erasing gains from Friday, after the recent more-than-expected price cut from the top oil exporter Saudi Arabia to Asia and an increase in oil production from OPEC countries. Retreating around 3% on Monday , WTI and Brent moved back higher on Tuesday.

Asian regions differ in expectations for Taiwanese pricing
Traders in India expect benchmark prices for PVC from Taiwan to rise slightly. But Chinese and Southeast Asian players do not see such strong bullish signals yet, as procurement has been limited ahead of the Lunar New Year holidays.

Traders find it difficult to determine the current market ranges as offers in the market have been few and far between. Most players are holding back their offers or bids, as they wait for the Taiwanese major to notify its prices for February.

Indian players remain bullish on hampered imports from US

A trader based in India’s commercial hub of Mumbai noted, “We expect the major producer to hike prices on its February allocations by $30-40/ton, as a result of the increase in freight costs. Currently, we don’t see any US offers as the shipping bottleneck in the Red Sea corridor has meant shippers relying on the longer route to India via the Cape of Good Hope. This means longer sailing time of about three weeks and higher freight rates.”

Another Mumbai-based trader said, “We expect the major to revert to its December pricing of $800/ton CIF. Considering the current higher freight rates, we may find an increase in the market appetite for PVC. We’re currently in a historically high-demand season when converters start piling up stocks to cater to the demand for pipes and profiles ahead.”

Chinese and Southeast Asian players are not buoyed by the freight turmoil

But expectations from Chinese and Southeast Asian players ranged from a slightly lower to slightly higher pricing for February. “Most market participants are waiting for the Taiwanese major’s offers. Expectations are mixed, with some looking at $20-30/ton hikes, while others are expecting no change from January, or even slightly lower pricing from the current month,” said an Indonesian trader, a sentiment echoed by a Philippine converter too.

In Southeast Asia, a converter said import prices were too high to accept and local traders were offering at lower levels as their inventories were high. “Our factory is running below 50% of capacity. Many converters are looking at early holidays before the Chinese New Year. We don’t plan to build up inventories for post-CNY as the direction of the demand curve is unclear,” she added.

A Vietnamese trader said while export prices are stable at $715/ton FOB, CIF offers have risen by $15/ton, because of higher freight rates. “Freight costs have kept increasing, pulling up all offers, although demand has not strengthened,” he added.

PVC prices stabilize since mid-December

Data from ChemOrbis Price Index suggest that ethylene-based PVC K67 prices have declined by 3-5% across the Indian, Chinese and Southeast Asian markets since mid-November, although the prices have plateaued since mid-December amid the Christmas-New Year holiday lull.

PVC K67 – China - India

Meanwhile, the previous week had seen a major producer in India reducing local prices by INR3000/ton ($36/ton). While some traders had expected this to have a dampening effect on the import market too, there are reports that the seller could raise prices shortly after any import price hike by the Taiwanese player, as the local price cut had resulted in brisk sales.
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