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Asian PVC makers eye cost relief from new cracker start-ups

March 25/2010

March 25  (ICIS news)--A deluge of new ethylene capacities, led by Shells massive 800,000 tonnes/year mixed feed cracker  in Singapore, could ease the cost pressure on ethylene-based polyvinyl chloride (PVC) producers in Asia and give them an edge over their carbide-based competitors, industry sources said on Thursday.


Crackers with capacities totalling more than 10m tonnes/year were expected to come on stream in the Middle East and Asia this year, adding to the 6m tonnes/year capacity in operation since 2009.


Although most of the new capacity would go into the polyethylene (PE) and monoethylene glycol (MEG) markets, industry sources said its impact on the PVC market would still be significant.


The PE and MEG markets will probably need to buy less ethylene (as a result of the new capacities) at a time when some of the new crackers have spare material to sell. Ethylene prices will come under downward pressure, said a Chinese ethylene-based PVC supplier.


About three-quarters of global ethylene output goes to PE and MEG production, while 12% was being consumed for manufacturing PVC, market players said. PVC is a key product used on construction materials like pipes.


Prices of carbide-based PVC grade had softened in recent weeks, dampening buying interest for ethylene-based PVC, traders and producers said.


Offers for April-arrival ethylene-based PVC in the key China market had been met with stiff resistance so far, even though seasonal demand for the product was supposed to have kicked in, they noted.


Carbide-based PVC in east China was at yuan (CNY) 7,250-7,300/tonne ($1,062-1,069/tonne) ex-warehouse (EXWH) on 19 March, lower than ethylene-based PVC prices of CNY7,400-7,600/tonne EXWH, according to global chemical market intelligence service ICIS pricing.


The question producers are asking is how much ethylene prices can come down by. Hopefully it will be enough for us to compete more effectively with carbide-based PVC producers, said a PVC producer.


Ethylene was at $1,170-1,230/tonne (?865.8-910.2/tonne) CFR (cost and freight) northeast Asia last week, with the spread between naphtha and ethylene prices was at $459/tonne (?344/tonne), ICIS pricing data showed.


Given that cracker operators could break even on a spread of $250-300/tonne, the new ethylene capacities should narrow the current spread considerably, producers said.


With naphtha prices at $740/tonne (cost and freight) CFR (cost and freight) Japan, a spread of $250-300/tonne would equate to an ethylene price of just over $1,000/tonne CFR NE (northeast) Asia.


The last time this happened, China had welcomed ethylene-based PVC imports as the countrys carbide-based PVC producers lost their competitiveness, market players said.


If oil reached $150/bbl and naphtha was over $1,000/tonne CFR Japan, it would still be difficult for ethylene-PVC producers to compete [with] their carbide-based counterparts, said a northeast Asian PVC producer.


But the newly started crackers may not run at high operating rates immediately, industry sources said.


It will be a while before we actually see the impact on PVC prices, a trader said.


Chinas calcium carbide capacity also remained a factor. Despite the Chinese governments efforts to curb the industrys growth on environmental grounds, the country still has an annual production capacity of 22m tonnes/year with an operating rate of just below 70%, market players said.


Considering current plans to add another 7m tonnes/year of calcium carbide capacity, carbide-based PVC producers in China might still be able to compete effectively on costs, industry sources added.                  

Asian PVC makers eye cost relief from new cracker start-ups

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