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Feature: PVC trade flows change as China volumes head to export market amid COVID-19

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Feature: PVC trade flows change as China volumes head to export market amid COVID-19

Highlights

Global PVC demand hit by weaker GDP growth

US inventories may build on weak demand for trans-Pacific route

  • Author
  • Fumiko Dobashi    Kristen Hays    Ora Lazic
  • Editor
  • James Leech
  • Commodity
  • Petrochemicals
  • Topic
  • Coronavirus and Commodities

The increasingly global COVID-19 outbreak has roiled polyvinyl chloride markets worldwide, prompting trade flow shifts in Asia, helping push European prices to a four-year low and creating tight supply-driven upward price momentum in the US.

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Chinese demand for PVC, a construction staple used to make pipes, vinyl siding, window frames and other products, has plunged amid work stoppages, plant shutdowns and slowdowns, leaving supply chains frozen.

While those situations are starting to improve, the global fallout is growing, leaving markets grappling with uncertainty as to how -- and when -- it may end.

"If this is a short-term thing, then we're really not concerned," a US market source said. "But we really don't know how long this will last."

SLOW CHINA DEMAND PROMPTS EXPORTS

PVC is seen as a key economic indicator as its growth is tied to GDP, with a particular link to demand from the construction sector.

However, the COVID-19 outbreak has prompted Chinese PVC makers to look to export markets as the outbreak has slashed China's domestic demand amid a construction slowdown.

China's manufacturing activity dropped to a record low in February, with the Caixin manufacturing purchasing managers index sinking to 40.3 in the month, down from 51.1 in January, according to local media reports.

Last year, Chinese PVC makers favored strong domestic markets over export markets, lured by higher domestic prices. According to Chinese customs data, China's PVC exports in 2019 dropped 6% from the previous year to 507,588 mt.

However, the coronavirus-fueled domestic slowdown has prompted PVC makers to look to export markets, even India, a key PVC importer that maintains a $60/mt anti-dumping duty on Chinese material.

Carbide-based PVC was heard to have been traded at $750/mt FOB China. Based on freight costs and anti-dumping duty, Chinese carbide-based PVC has been trading in the high-$800s/mt CFR India.

One trading source said that China has already sold around 8,000 mt into India since the outbreak began.

In addition, rising Chinese supply has pressured export prices, prompting concern among producers in Southeast Asia as well as other regions about cheaper Chinese volumes displacing other flows.

The CFR China and CFR India PVC markers each fell $10/mt to be assessed at $850/mt and $890/mt. respectively, on Wednesday, S&P Global Platts data showed.

TRANS-PACIFIC ROUTE AFFECTED

One US market source said Chinese PVC may not easily find homes if buyers stick with long-time suppliers rather than accept material from different origins even if it does require extra costs to ensure quality control.

China was the second-largest export market for US PVC in 2019, behind Canada, despite anti-dumping duties, because those costs can be recouped by re-exporting products made with it. The source said China's return to the PVC export markets adds limited competition, and a bigger concern for US exporters is whether Chinese demand for US material could rebound.

Two other sources said another concern would be China's slowdowns translating to fewer container ships moving Asian products to the US. Fewer ships would mean fewer stops at US ports to move exports to Asia, Europe, the Middle East and others – and fewer containers emptied of Asian imports that can be filled with US exports, including PVC.

"We have to be careful about it," a US PVC producer source said. "Ships are reducing trans-Pacific services, and we're starting to see a lack of containers."

A resin packaging source added that packagers also were monitoring that potential domino effect of the coronavirus. A container squeeze would lead to full warehouses and rail storage-in-transit (SIT) yards, which could force producers to reduce rates until the supply chain clears.

Tight US PVC supply driven by turnarounds and operational issues this month and next had pushed prices to an 18-month high, but COVID-19 uncertainties have dampened that momentum for March volumes. Prices have risen nearly 15% to $855/mt FAS Houston since December 18, but efforts to seek higher prices have met strong resistance despite the supply squeeze.

In addition, lower Chinese demand leaves US volumes -- and those from other areas that supplied China -- competing for other destinations.

"Demand in South America is still okay, but the market will not be able to absorb any surplus from the US," a source said.

PVC DEMAND HIT BY COVID-19 IN EUROPE

In Europe, FD NWE PVC prices fell Eur40/mt on the week Wednesday to a four-year low of Eur750/mt as coronavirus impacts on shipments to affected countries led to extra spot volumes seeking other destinations.

So far, Italy has seen the most coronavirus cases in Europe, particularly in the highly industrialized Lombardia and Veto regions in the north of the country. A market source said European suppliers were struggling to sell PVC in Italy, and were pushing for sales in Africa and the Middle East, while Middle East suppliers were struggling to sell volumes into Europe.

So far in 2020, key European PVC suppliers have focused on regaining margin losses from caustic soda in 2019. With higher offers on domestic monthly contract prices reached in January and partially accepted in February, the continued cautious, "buy what you need" approach has kept European producers seeking additional PVC outlets in growing Asian markets in addition to Turkey and North Africa.

"Export [volumes] went better and better. March export volumes already booked fully," one producer said.

"There is still good trend in India, and same in Turkey," another producer said. "Only in some markets we were able to increase prices.

Going into April, additional availability may emerge in the world market, which could see fewer European export flows to Asia, market sources said. Also, turnarounds at key PVC plants in April and May could also shrink available supply.

"For now, want to focus on the positive. After many months of margin struggle, we have better netbacks. April is still to come," he added.

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