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Highlights

PVC outlook seen weak amid economic downturns, uncertainty

Caustic soda to remain pressured by amply supply, industrial downturns

Houston — China and India -- the top global markets for construction staple polyvinyl chloride -- will play a major role in the export markets in 2020 after both countries lifted antidumping duties on PVC from many regions, opening the door to new trade flows.

Commodities 2020 | S&P Global Platts

China's Ministry of Commerce announced in October that antidumping duties on PVC imports from the US, Taiwan, Japan and South Korea had been removed in late September.

Market sources said Asian makers may start moving additional cargoes into China, while reducing quantities to other areas, such as India, where competition is intensifying after the Indian government in July lifted antidumping duties on material from a string of regions, including the EU, Japan, Malaysia and Indonesia.

India needs to import about 2 million mt/year to satisfy domestic demand. A government plan to increase supplies for making plastic pipes and ensure clean water supply in rural areas signals further demand growth.

However, since lifting the duties, incoming low-priced deepsea cargoes have depressed prices in the highest-priced market. The CFR India price averaged $902.44/mt for January-October this year, compared to $967.55/mt in 2018, S&P Global Platts data showed.

Sources will continue to monitor the European market as cargo availability from Europe could persist into 2020 amid sluggish demand there.

For Europe, the first half of 2020 will continue the dynamics from the latter part of 2019 with squeezed margins. However, Europe can keep exploiting improved export opportunities, where it could be highly competitive. Sluggish domestic demand linked to political and economic uncertainties is also expected to continue, paired with feedstock cost volatility.

"Poorest prices in Europe are clearly lower than standard prices in export markets. Certainly, this will give an incentive to European producers to release a bit of the pressure by diverting more volumes to export, where the netback is now clearly improved and even better than with some biggest European converters," a European producer source said.

The US, however, has largely been left out of such gains. India lowered antidumping duties on material from US producers, but did not eliminate them, leaving duty-free exporters with a sharp advantage.

Also, while China lifted antidumping duties on US PVC in October, PVC is among the US products facing tariffs unless US-China trade talks produce a deal that includes eliminating such additional taxes, or an agreement to postpone. China is the second-largest export market for US PVC behind Canada.

OUTLOOK WEAK

Despite some inroads for other regions to get material to China and India duty-free, PVC, which tends to grow at one times GDP, still faces gloomy times in 2020 with economic slowdowns seen in China and Europe as well as signs of what some see as an industrial recession in the US.

About 60% of PVC is used in construction, so PVC markets tend to rise and fall with the economy.

The International Monetary Fund projects global growth at 3% for 2019, the lowest since the 2008-2009 global financial crash.

For 2020, the IMF sees growth at 3.4%, a 0.2 percentage point downward revision from April. While the 2020 outlook assumes improved economic performance in Latin America, the Middle East, and some other regions, it assumes continued uncertainty as well, with uncertainty in Europe and projected slowdowns in the US and China.

"Demand overall remains poor," a US market source said, noting that end-users increasingly demand low pricing seen unworkable given freight and other costs. "We are seeing new thresholds for numbers we haven't seen in a long time."

However, PVC producers maintain that despite the current weakness, global demand is expected to outstrip supply over time given the lack of significant PVC capacity additions compared to other polymers, namely polyethylene. Also, cheap US ethane maintains a cost advantage over naphtha-fed feedstock elsewhere.

"Global PVC demand has increased from over 30 million tons to roughly 40 million tons the last 10 years and is projected to increase to over 50 million tons by 2021, driven by construction and infrastructure requirements, particularly in a lot of the emerging markets," Westlake Chemical's treasurer Jeff Holy said at an energy conference in November.

CAUSTIC SODA BRACES FOR WEAKNESS

The global caustic soda market is bracing for continued weakness into 2020 as well, with producers facing prolonged rate cuts to dent ample supply that has depressed pricing amid lukewarm demand.

"The outlook is not great. Markets are bearish, stocks are high and there is no interest from buyers," a European market source said.

Olin, the world's largest chlor-alkali producer, reported a 77% decline in third quarter earnings compared to a year earlier, having seen a significant slowdown in chemical demand.

Those slowdowns illustrate declines in global industrial activity and slower economic growth, which Westlake CEO Albert Chao attributed to continued uncertainty in international trade -- namely the US-China trade dispute -- that has pressured prices over the past year.

INDIA DEMAND SEEN KEY

In Asia, market sources said India demand was key for 2020. In 2019, some Northeast Asian producers -- such as South Korea and Japan -- were unable to export their cargoes to India due to additional requirements to gain the Bureau of India Standard (BIS) certificate for caustic soda exports.

A market source said most Northeast Asian makers have since gained BIS certificate for their caustic soda products, which will normalize exports from Northeast Asia to India in H1 2020.

India typically imports around 400,000-500,000 mt of caustic soda annually and its demand from alumina is expected to rise with new alumina refineries on tap. Of the total caustic soda imports, around 300,000 mt would be exported to East India from Asian producers, while the remaining volume would come mainly from the Middle East to West India.

Market participants are also closely monitoring the operating rates of Emirates Global Aluminium's 2 million mt/year alumina refinery, which started up in early 2019 and is yet to reach full capacity.

The resumption of full rates in 2019 of Norsk Hydro's 6.3 million mt/year Alunorte alumina refinery in Brazil did not lift US spot export caustic soda prices as expected, because the company receives its feedstock via contract.

US caustic soda exports also face pressure from the shutdown of the JISCO Alpart 1.6 million mt/year alumina plant in Jamaica for up to two years for a major upgrade.

Olin's executives expect caustic soda pressure to linger, but as in the case of PVC, the lack of significant global chlor-alkali capacity expansions indicates supply will tighten over time as demand rises, if not in the short term.

"Current industry economics do not support world-scale chlor alkali investments. Ultimately, over the long term, supply and demand balances will tighten, resulting in upward pricing momentum," Olin CEO John Fischer said.

Commodities 2020 | S&P Global Platts

-- Kristen Hays, kristen.hays@spglobal.com

-- Ora Lazic, ora.lazic@spglobal.com

-- Fumiko Dobashi, fumiko.dobashi@spglobal.com

-- Edited by Shashwat Pradhan, shashwat.pradhan@spglobal.com