European PVC producer shelves idea of electricity surcharge amid continued record high pricing

A European PVC producer will not apply electricity surcharges, given the difficulty in breaking down the energy production costs and resistance from consumers, that have been accustomed to continued record high pricing, the producer source said.

"We have been thinking about the electricity surcharge. You need to split the gas and electricity [components]. So, if you look at PVC, moving from ethylene to EDC, you need a lot of heating, or gas. When producing chlorine, you need a lot of electricity," the producer source said.

"We decided that we would not go for an electricity surcharge on PVC. We have decided to draft a decision for caustic but for PVC we will relate to a market driven increase," he added.

Kem One in September announced that it was targeting a Eur110/mt surcharge on top of PVC sales from Oct. 1, following a surge in electricity costs.

At the same time, the French PVC producer announced that it would increase caustic soda prices by Eur200/dmt from Oct. 1 to take into account the electricity cost push.

PVC is a key polymer used in construction materials and window profile applications. The production of both chlorine, EDC and VCM -- key inputs in the PVC production process. This chlorine production chain process relies on electricity to make PVC.

Caustic soda -- used in key water-treatment and paper pulp, alumina and detergent applications -- is made via an electrolysis process and is also part of the chlorine-PVC production process.

Polymer producer sources, in styrenics as well as PVC markets have recently said passing through electricity costs via the surcharge route was unlikely to work given the different cost components that affect PVC as well as the tighter market fundamentals which have led spot prices to successively push into record high territory.

Despite producer intentions, monthly PVC contracts in October rose by Eur50/mt FD to Eur1,620/mt FD Europe, according to S&P Platts data.

Since the start of 2021, PVC spot prices have climbed Eur590/mt or 44% to be assessed Nov. 3 at Eur1,670/mt FD, according to S&P Global Platts.

At the same time, Turkish spot prices have surged 53% or $780/mt in the same time period, mainly due to tight supply.

The situation affecting PVC was unlike that affecting caustic soda, where a larger portion of the costs of production are taken by electricity, with electrolysis the prime method of kick starting the chlorine production chain.

Although some polymer markets have eased from their record high price levels, most remained at historically high prices, including polyethylene, polystyrene and ABS.