Demand for construction staple PVC falling amid coronavirus uncertainty.

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Petrotahlil - Demand for a resin used to make construction staples like pipes and vinyl siding has retreated in recent weeks, prompting startling price declines as producers seek to unload volumes and traders scramble for buyers.

"There is demand destruction in this pandemic," a US market source said. "This is completely different than anything we've seen in the past. Now the question is how quickly we can come out of it, and how long it's going to take."

PVC's fortunes are closely tied with economic activity and GDP. PVC markets have grown much more volatile after India last week imposed a 21-day lockdown to stem the coronavirus outbreak, shutting off what had been a key market with annual PVC imports of 2 million mt to feed ambitious construction plans in the coming years.

That shutoff sent Asian producers typically dependent on supplying India to other markets, particularly China, which had begun exporting PVC when its own coronavirus-related shutdowns squashed domestic demand earlier in the year.

Increased competition between US and Asian flows — and falling Asian prices — pressured US producers during negotiations in the past week for April export PVC volumes. A producer initially offered material at prices $100/mt below settled prices from early March and solicited no takers.

Those offers dropped further, and deals were concluded at decreases of $120/mt, $140/mt and $190/mt compared with last week's assessed levels.

Some buyers still declined to participate, basing their stances on expectations of further price declines as construction demand shrinks amid widespread global shutdowns.

"We suspended any new purchases for April shipment as our customers are holding back and refraining from purchases due to several reasons, but mainly due to lockdowns associated with COVID-19," a trade source said. "We will review the market in two weeks."

GLOBAL PAIN FOR PVC

The pain is global. European PVC demand destruction was seen intensifying this month as producers face massive order cancellations, which could lead to lower prices and rate cuts. European countries have extended pandemic-induced lockdowns past the Easter holidays, so the first two weeks of April were wiped from a normal month's orders.

"One week or two of April there will be no orders. [We're] not sure how producers will react. A large window profile company closed two out of their three factories. UK [industry] has completely stopped. France, Spain are closed. Belgium is also affected by France. Germany - there's a lot of trouble," a European source said.

European sources said export markets "have also vanished" with the India shutdown. Turkish buyers have stepped back, awaiting lower prices.

"Global prices are coming down very quickly," one source said, adding: "So, Europe has no outlets in PVC domestically or globally until at least the end of April. May - not sure what will happen."

In Asia, demand also has been falling quickly amid the Indian lockdown, and China has ceased offering PVC exports because "there is nowhere to export," an Asian trade source said.

"Actually the current market is practically paralyzed except for China. Therefore, all the major suppliers are trying to plunge into the Chinese market, which rapidly turns the balance to oversupply," said a market source.

Some market sources expect initial May offers for India may be more than $100/mt lower than April's, which fell $50/mt from March levels, because of the lockdown. That could mean $750/mt CFR India, $150/mt down from April levels.

China saw widespread plant shutdowns and reduced rates in January and February during coronavirus-related lockdowns and poor domestic demand, and the US and Europe could see similar actions.

A European producer source said every possibility was under consideration amid daily evaluations of orders and operating rates.

"If it's two or three weeks, its OK. If longer, we have to make some difficult decisions," the source said.

A US source noted that even if producers ramp up and slash prices, "it's still not guaranteed that that there will be people buying. The fear is really incredible. People may have to think seriously about cutting rates."

On Wednesday, the Institute for Supply Management in the US said its index of US factory activity fell to 49.1 in March from 50.1 in February. A reading below 50 is considered a signal of a contraction in manufacturing.

In addition, ISM said its gauge of new orders fell to 42.2 in March, the lowest level since March 2009 amid fallout from the 2008 financial crash. ISM also said the level of prices paid fell to 37.4 in March from 45.9 in February.

While some are looking back to the sharp decline in PVC prices to $500/mt FAS during the 2008-2009 crash, a US market source noted that US export PVC prices fell below $400/mt FAS during the 2001 recession. Prices reached what is now a 20-year low of $342.50/mt FAS on November 28 that year. S&P Global Platts data show.

More price volatility is expected in the coming weeks as market participants navigate unprecedented pandemic fallout.

"At this moment, it looks like there is going to be no end," a US market source said. "But at some moment, when it looks to be a little better, demand will skyrocket. The market will turn - but I don't know where that point is."

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