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China PVC rebound to be slow despite tight supply

December 29/2011

(ICIS) -- Chinas polyvinyl chloride (PVC) import prices are likely to rebound next year on the back of tight supply, but the gains may be undermined by weak downstream demand and a bearish global economy, industry sources said.

PVC prices in China began declining in mid-August and fell to an all-year low of USD 840-860/tonne (EUR 647-662/tonne) CFR CMP on 4 November. That is 31% lower as compared with the 2011 peak of USD 1,220-1,250/tonne CFR CMP seen in late May.

The downtrend in prices was due to the high interest rate in China and the tightening of its monetary policy, which restricted end-users cash flow and weakened buying sentiment.

However, prices rose following an explosion at Japans Tosoh Corps 550,000 tonne/year No 2 vinyl chloride monomer (VCM) line at Nanyo in Yamagata prefecture on 13 November, to settle at  to USD 940-950/tonne CFR CMP on 23 December
VCM is the key feedstock for the production of PVC.

Market players said the recent rise in PVC prices was largely because of the tightened supply as well as high feedstock VCM prices, instead of actual demand as downstream consumption in China has been persistently weak.
VCM prices have been hovering at USD 750-800/tonne CFR NE Asia since mid-November.

The PVC price increase is because of tight supply and a cost push because of high feedstock VCM prices, a Japan-based producer said.

Looking ahead, market participants have different opinions on the outlook for the PVC market next year.
Some market participants are optimistic about an improvement in demand after the Lunar New Year holiday in late January and said that will bode well for prices.

However, other market participants are doubtful about the likelihood of a strong rebound in PVC prices next year.
A trader in China said the tight supply stemming from Tosohs outage is not expected to have a major impact on PVC prices because demand is unlikely to recover next year, judging from the weak Chinese construction sector.

Moreover, there are serious concerns about the eurozone debt crisis as well as weak US economy, which are expected to persist in the coming year.
The bearish global economy may dampen the buying interest for PVC as the US and Europe are big re-export markets for downstream Chinese manufacturers, industry sources said.
In general, prices should be on an uptrend, but not so strong, because the economic situation is not stable, said a trader in Japan.
Author:Marina Ivanova
Tags:PVC, VCM.
Category:General News
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