Global PVC facing headwinds in H2 2019.

Petrotahlil :Global polyvinyl chloride markets are seen largely flat to lower through the latter half of 2019, with economic  uncertainty prompting buyers to proceed with caution. 

“So many buts and ifs, US-China trade tensions, Iran and Brexit,” a European market source said.

“The key factor is the economy in Europe is not doing very well — that is the defining factor at the moment.” 

Market sources in Asia and the US have voiced similar views, with signs of slowing global economic growth  tempering enthusiasm for stocking up on PVC, a construction staple closely tied to GDP movements. 

The International Monetary Fund’s World Economic Outlook in April noted that, after strong growth in 2017 and early 2018, global economic activity had slowed, reflecting a retreat in China’s growth amid the US-China trade tensions.  

Europe lost momentum amid weaker consumer and business confidence.

In the US, Federal Reserve Chairman Jerome Powell in June noted first-quarter gains in domestic economic  growth from higher exports and inventories, but said those factors “are not generally reliable indicators of ongoing momentum.” 

However, potential bright spots have emerged as key global markets lift or consider lifting anti-dumping duties that have largely shut out major global suppliers. 

India 

More than a decade ago, India imposed anti-dumping duties on suspension-grade PVC from Taiwan, China, Indonesia, Japan, South Korea, Malaysia, Thailand and the US.

Such duties on EU material followed. Late last year, India’s Bureau of Indian Standards (BIS) launched a review of those duties, which were slated to expire on June 12 this year. 

The day before the expiry, India’s Ministry of Finance issued a notice extending the expiration of duties on material from the US, China and Thailand to August 12, effectively lifting duties on PVC produced in the other countries and the EU. 

However, India acted early.

In July, this month India lowered  anti-dumping duties on PVC imports from China and the US, and eliminated those on material from Thailand.

Previously, India imposed up to $147.96/mt duty on Chinese PVC, and reduced that amount from certain companies to $61.14/ mt.

Those companies include Tianjin LG Bohai, Tianneng Chemical, Tianjin Dagu, Xinjiang Shengxiong Chlor-Alkali, Chiping Xinfa PVC, CNSG Jilantai Salt Chlori-Alkali Chemical  and Yibin Haifeng Herui. 

Meanwhile, India kept its $29.99/mt anti-dumping duty on Westlake Chemical, and reduced the duty on OxyChem  to $49.10/mt. Previously, India’s duties on US PVC were  $115.54/mt except for Westlake. 

India’s PVC production capacity is 1.45 million mt/year, but estimated demand surpasses 3 million mt/year.

That demand is expected to increase in tandem with India’s  growing economy, with expectations of sharp construction growth in the coming years.

Competition among PVC sellers is expected to turn fierce, particularly if remaining duties on material from  the US, China and Thailand are eliminated as well, opening India to their flows as well.

With lukewarm demand seen in other key markets, such as Europe, West Africa and the Middle East, access to India would be a boon for US traders. 

“We are watching this very closely,” a US market source said. 

In Asia, however, market sources saw a limited impact from the BIS move as most PVC makers were ready. 

“We have already prepared for this,” said a Japanese  PVC producer, noting that importers must obtain a BIS  certificate before they can ship PVC to India. 

BIS imposed the same requirement on caustic soda imports last year, which significantly slowed inflows for months until companies started getting such certificates earlier this year. 

Brazil 

Brazil also could lift duties on material from the US and other countries amid supply concerns stemming from Brazilian petrochemical producer Braskem’s issues. 

In May, Braskem shut its salt mining operation in the Brazilian state of Alagoas, as well as a chlor-alkali plant  and its sole ethylene dichloride facility in Brazil, after a  government report linked the company’s salt extraction to geological damage in nearby neighborhoods. 

Those shutdowns prompted Braskem to reduce rates at its two PVC plants in Brazil, and on June 14 the company went to court to challenge the report’s conclusions. Braskem is also continuing negotiations with the government to  resume salt mining in another location in Alagoas, which would allow the chlor-alkali and EDC plants. 

Abiplast, Brazil’s plastics industry trade group, in May asked the Brazilian government to lift anti-dumping duties on all PVC imports amid supply concerns given the  “probable consequences of this paralysis and shortage of PVC in the Brazilian market.” 

The Brazilian government has yet to respond, and immediate concerns about supply have begun to soften as regular incoming EDC imports have allowed the company to increase PVC production rates in July.

However, US market sources have voiced growing concerns that another court’s freeze of up to R$3.7 billion ($973 million) in Braskem’s financial assets to potentially pay for the geological damage could hamper the company’s ability to pay for future imports, which could refuel supply concerns. 

Supply additions PVC has not seen the same kind of exponential production capacity growth as polyethylene, particularly in the US as a result of unprecedented access to cheap feedstock ethane amid its natural gas shale boom. However, some capacity additions are coming later this year. 

In Asia, new PVC capacity slated to start up in the second half of 2019 includes 150,000 mt/year at UPC Technology’s site in Taizhou, China, and a 100,000 mt/year unit by  Japan’s Tosoh in the Philippines. Tosoh’s new unit is among PVC projects without integrated upstream units that will need to buy PVC feedstocks.

James Varilek, chief operating officer at Olin, the world’s largest chlor-alkali producer, said earlier this year that such additions without corresponding  upstream capacity increases open more opportunity for  merchant ethylene dichloride and possibly vinyl chloride monomer sales. 

In the US, Westlake Chemical also aims to start up new PVC capacity at its 331,122 mt/year facility in Geismar, Louisiana, and its plant in Burghausen, Germany, with a third debottlenecking project on tap at its second German PVC plant in Gendorf next year. 

The company has not said how much of its overall 340,195 mt/year capacity breaks down among the  three plants.

However, most is slated for Geismar and is expected to largely fill a void left when building products company CertainTeed shut its 220,000 PVC plant in January this year, leaving overall US PVC capacity of  8 million mt/year largely unchanged until Shintech’s expansion of its integrated PVC operations in Louisiana starts up in 2020. 

Shintech’s project involves increasing PVC output at the  complex by 58% to more than 1 million mt/year, adding a new 1 million mt/year VCM unit, and another 680,388 mt/year of EDC, 635,029 mt/year of chlorine, and 725,747 mt/year of caustic soda. 

Cautious buying PVC makers expect demand growth to largely track GDP  growth, but expect buyers to be more judicious with rising  uncertainty regarding economic growth and trade tensions. 

PVC buyers in Europe are more often heard not pre-buying volumes, as they are confident that supply will be available with possibly better prices later in the year. 

In the US, a temporary supply squeeze from turnarounds and higher domestic demand gave export PVC prices a jolt in June, but prices held steady for July despite continued supply availability issues because global demand remains  lukewarm.

And enthusiasm for higher August pricing during July talks in Asia has since abated, with market  participants expecting prices to be flat to lower.

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Source:S&P Global Platts 

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