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Listen: Production issues keep European PVC market stable despite lower feedstock cost

Before the end of 2018 the polyvinyl chloride market experienced several production issues across Europe which led to low end of year inventories. In this podcast, Ora Lazic, associate editor for EMEA polymers and olefins, joins Lara Berton, associate editor for EMEA petrochemicals, to look at the challenges the PVC market faces in 2019.

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LB: Welcome to another S&P Global Platts commodity spotlight podcast, I am Lara Berton associate editor for European petrochemicals markets in London. I am joined today with by my colleague Ora Lazic who covers the ethylene and PCV market.

Ora, thanks for joining me.

Before the end of 2018, the PVC market had experienced several production issues across Europe which have led to low end of year inventories. Ora can you explain more how this is affecting the market?

OL: The PVC industry ended 2018 with low stocks, which market expects will take time to refill and provide for January sales.

This was following several production issues, some still persisting in the PVC plants, especially in North-western Europe where plants were affected by the low Rhine water levels since summer 2018. So, normally spot prices for PVC follow ethylene prices, as a raw material for PVC. For example, if ethylene falls by Eur100/mt, PVC would follow the same trend. However, what we have seen since November 2018, when PVC stocks shortage took more effect, due to production and logistical difficulties – instead, PVC spot price kept in a narrow Eur850-Eur900/mt FD NWE range. And this range is expected to keep stable in coming months. Who has been affected by this? / What issues do you still see?

* In Germany, Vinnolit and Vestolit sites in Germany, with annual PVC production capacity of around 350,000mt and 400,000mt, respectively, declared force majeure in late October and mid-November, citing Rhine-related supply chain issues, understood still ongoing.

* In France, Kem One, one of the biggest European exporters, has been having production issues at both its Fos-sur-Mer and Berre plants since October 2018, after a delayed maintenance start up at Fos and ethylene supply difficulties at Berre. Plants have since re-started, but as confirmed by the company in late December, not operating at full capacity yet, which affects their normal output.

* Also, reduced availability of ethylene during spring cracker maintenance is also seen as a potential threat to PVC production. However, sources have said that European supply may be partially compensated by US ethylene imports.

LB: You have previously mentioned water levels on the Rhine have been a key factor – what is the situation now?

OL: Rhine water levels have hit the record low level in autumn at 36cm at Kaub, an important choke point, and market expects the logistical issues to continue into spring months 2019, when better weather will see more barges available for normal operations. Rhine levels has been already improving in December 2018 – recovering to around 100 up to 200cm (at Kaub) between December and January – however the affected PVC producers said that their situation has not changed. Information from the market is that everyone is waiting for snow, as when it melts that is when it should make real difference for shipments to fully re-start.

LB: And looking further into the future, how are things shaping up?

OL: European PVC market might face several challenges in 2019: in addition to the diminished inventory continuing from end of last year, PVC industry will also need to manage preparation for the feedstocks supply restriction during the ethylene cracker maintenances in the second quarter. At the same time, the market will also be closely watching changing trade flows, with geopolitical uncertainties presenting demand risk in some PVC export markets while imports from the US and Mexico may present new opportunities to buyers and challenges to sellers in the year ahead.

For instance, sales to Turkey, by far the biggest export market for European PVC, have become more difficult since summer, when the currency crisis in Turkey intensified. Year-to-date flows from Europe were 390,122 mt for January to October 2018, up around 3% on-year, according to Eurostat data, but began to fall sharply in the third quarter, from 42,220 mt in July to a multi-month low of 26,692 mt in September. Market sources expect a continued downtrend as European PVC competes with offers from other regions for fewer buyers in a weakened Turkish market. Competitive offers are expected from the US, Korea and Mexico alongside more traditional sellers in the Middle East and Egypt.

LB: What about C2?

OL: C2: After a period of length in 4th Quarter 2018, Q1 2019 is expected to balance the international market for ethylene, supported by the stable demand in the downstream markets.

After Eur110/mt decline in contract prices for December, and another Eur40/mt decline in January contract prices, market expects the ethylene length to become less heavy in 2019, especially considering the period of scheduled cracker maintenances coming in spring. Also, improving Rhine levels at that time will help cracker run rates and help resolve logistical issues at PVC plants.

LB: Thank you Ora. That's it for today's podcast. You can find more news and analysis at Platts.com. Thanks for listening.