Market and product

An 11-month slide in US values for polyvinyl chloride (PVC) may be coming to an end as the markets realign on a new set of dynamics.

US spot exports this month saw their fifth straight week of increases out of the US Gulf. And producers now see their best chance in months to gain value from contract prices for March.

“I think we hit bottom when you couldn’t get PVC for less than $600/tonne,” a trader said of the spot export prices in late January.

2015 became the year of disappointment for PVC producers, who were expecting a pick up in demand on greater construction activity. PVC is used for vinyl siding, window and door profiles, fencing and electric wire insulation. Its demand is tightly coupled to construction activity.

But the expected demand from a construction boom failed to build during the year. And nagging worries about China’s economy seemed to sap the market every time positive signs began to appear elsewhere.

US producers were able to get contract prices up slightly in March 2015 – a 3 cents/lb increase. But prices began falling in late summer and lost 7 cents/lb by the time of a 1 cent/lb decline in January.

Likewise, spot export prices peaked in April in a range with a mid-point of $880/tonne FOB (free on board) USG (US Gulf). But then fell throughout the rest of the year to start 2016 at a mid-point of $612.50.

Some prices briefly dipped below $600/tonne for pipe grade material in the last two weeks of January.

US exports – fueled by low spot ethylene feedstocks in the Gulf Coast that travelled through the fall at a 6-11 cents/lb discount – actually grew by 21% to China compared with 2014 volumes, according to figures from the US International Trade Commission (ITC).

But, overall, US export volumes through 2015 remained flat with 2014 volumes. Exports are an important sales sector and the destination of 35% of US production annually. Flat exports were unable to make up for slack demand in the US domestic market, according to the American Chemistry Council (ACC).

Even in January, with prices at their lowest since March 2009, demand was stalled as buyers held off in hopes of even further discounts.

“People are hesitating to buy right now,” a glum trader said during the last week of January as crude oil prices found new lows. “It may be recovering, but it’s slow.”

That was when things changed.

Demand from India became surprisingly strong. And China seemed stronger than expected, as well.

Buyers who had postponed purchases through 2015 suddenly had to restock ahead of the looming construction season.

Additionally, a number of plant maintenances in the US Gulf over March and April tightened supply.

US producer price increase initiatives, which failed in January and February, now look to have some hope in March.

Producers are now seeking a 5 cents/lb hike for March after efforts to get 2 cents/lb in January and 3 cents/lb in February were postponed and then discarded.

“They’ll probably get a penny or two,” one trader said of market sentiment.

One producer is seeking an additional 3 cents/lb for April.

Most importantly, perhaps, spot prices for feedstock ethylene started to track higher in the second half of January and are up almost 8 cents/lb over the past six weeks. That fueled a 1 cent/lb increase for ethylene contract prices for February.

“The market is a lot stronger than anybody expected,” a buyer said during the first week of March.

Major US PVC producers include Axiall, Formosa Plastics, Occidental Chemical, Shintech and Westlake Chemical.