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FEATURE: Tight global PVC supply pushes prices to multi-year highs


April's pandemic-related lows now a memory with demand up and supply sparse

Supply expected to remain tight through October

Houston — When coronavirus pandemic-related shutdowns and economic shocks gripped much of the world in April, demand for construction staple polyvinyl chloride careened to lows not seen since the global financial crash in 2008.

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Home construction activity cratered. PVC buyers recoiled and sellers chased shrinking pockets of demand, often in vain.

Five months later, it's a starkly different picture. Months of reduced rates, turnarounds, demand recovery and some force majeures on PVC in the US and Europe have pushed prices to multi-year highs. Buyers want the powder that makes pipes, window frames, vinyl siding and other products amid an acute supply squeeze.

"At this moment there's really no product in the market," a US market source said."There's a little coming from Asia. Prices are high. People are buying, in pockets, not everywhere."

US export PVC prices fell 39% in six weeks to a 12-year low of $520/mt FAS Houston on April 29 at the height of the shutdowns. Prices began rebounding in May as shutdowns eased, reaching $800/mt FAS by August.

Then Formosa Plastics USA and Westlake Chemical, two of the four US producers, declared force majeure on PVC in mid and late August. None had resumed fully normal rates post-April amid turnarounds or skittishness about whether improved demand would be sustained. By Sept. 16, prices had doubled from that April 29 low to $1,050/mt FAS, a nine-year high.

That supply tightness is global. In Europe, contract customers have been put on allocation amid low stocks. Inovyn, Europe's largest vinyls producer, on Sept. 1 also declared force majeure on PVC from its Northern European plants.

And in Asia, fresh October offers were announced Sept. 15 up $130/mt from September levels, and ex-Taiwan quantity heard at 40,000 mt sold out in a day.

Asian market sources said limited supply from the US sparked demand for Asia-origin cargoes, but FOB China offers heard at $980/mt were not workable on a CFR India/Southeast Asia basis.

"The situation is pretty serious. PVC is a scarce product all around the world," a European market source said. "Hiccups in European production. Strong demand recovery way ahead of what players expected. PVC pipeline is completely empty, customers are screaming for material.

"In May and June, no one invested in building stocks due to COVID-19," the source said.

Asia, Europe PVC prices show hefty rebounds from April lows

In mid-March, PVC prices in Asia showed some resilience despite the pandemic's initial spread in that region, particularly China, that prompted shutdowns. By April 29, CFR India and CFR Southeast Asia markers had fallen 22% to $660/mt and $630/mt, respectively. The CFR India price was the lowest since S&P Global Platts began assessing it in 2011, and the CFR Southeast Asia price was an 11-year low.

CFR China prices fell 21% in the same span, also to an 11-year low of $630/mt, Platts data showed.

European prices were initially more hardy, ending April down 17% from mid-March at $700/mt FOB NWE. However, prices fell another $100/mt by May 20.

Those regions showed strong price rebounds by Sept. 16 that reached highs not seen since 2018: $1,040/mt CFR India, $990/mt FOB NWE, $980/mt CFR Southeast Asia and $970/mt CFR China.

Lack of European and global supplies pressured Turkish prices upward as well. CFR Turkey prices soared to 7-year highs at $1,090/mt on Sept. 16, Platts data showed. CFR Turkey prices hovered at $895/mt in mid-March, and had fallen 28% to $640/mt by early May.

And Latin American prices showed similar swings. CFR West Coast South America and CFR Brazil prices were $925/mt ands $910/mt, respectively, at the end of February. By April 29 CFR WCSA prices fell 35% to $600/mt, and CFR Brazil plunged 26% to $670/mt.

On Sept. 16, the CFR WCSA and CFR Brazil markers were assessed at $1,130/mt and $1,200/mt, respectively – among the highest in the world.

Traders across the region have see no availability from the US since Hurricane Laura's Aug. 27 assault. Also, with few cargoes available from Europe and Asia, Latin producers also were unprepared to meet regional demand, sources said.

Spot availability expected to remain tight through October

Global supply is expected to remain tight through October, with multiple turnarounds on tap and lingering force majeures.

Formosa declared FM on Aug. 14 on US PVC after a turnaround launched in mid-June at a Texas upstream chlor-alkali plant lasted several weeks longer than planned, leaving downstream ethylene dichloride stocks depleted on top of already thin PVC inventories after conducting maintenance at a Louisiana PVC plant in July.

Westlake declared FM on PVC and upstream vinyl chloride monomer on Aug. 31 after Laura ripped through southwest Louisiana, severely damaging power transmission infrastructure in Lake Charles, where the company operates a substantial complex.

And Inovyn's Sept. 1 FM on PVC stemmed from a power outage at the Rafnes VCM plant in Norway, leaving the company's Northern European PVC sites without electricity.

Market sources expect prices to soften by late 2020 once production resumes normal rates after the FMs are lifted, turnarounds wrap up, stocks are restored and if demand wanes in winter months as is typical.

But in the near term, spot volumes of the powder remain elusive.

"No matter the prices, there is no product," a European source said. "From hand to mouth at the moment."