Producer price hikes won't fly
By Staff -- Purchasing, 12/10/1998
Prices for polyvinyl chloride, (PVC) continue to soften despite recent attempts by some PVC producers to raise prices by 2(cent)/lb. Purchasing's forecast: PVC prices will stay flat or even slightly decline before rising slightly toward the end of next year.PVC producers Georgia Gulf Corp., Atlanta, Ga.; Borden Chemicals & Plastics of Columbus, Ohio; and Formosa Plastics Corp. USA of Livingston, N.J., say a 2(cent)/lb price increase is necessary to improve margins and stabilize prices and capacity for next year.
But even with strong demand from recent growth in the construction industry, (new housing starts in July and August were the highest they have been in several years) producers are skeptical that their returns will improve in the near future. Occidental Chemical Co., the market leader for PVC, said it wouldn't rule out a price hike in the future, but it will not support increases at this time.
Experts point to oversupply of PVC capacities during good times and Asian export reductions for the overall problem. It's also important to remember that PVC is largely affected by the construction industry, which is seasonal. Domestic demand for materials typically follows an April-to-October cycle, with construction in much of North America coming to a standstill during the winter months.
PVC prices have fallen an average of about 6(cent)/lb this year. According to Purchasing's monthly chemical transaction survey, current prices for general purpose PVC are at 25(cent)/lb for contracts and 26(cent)/lb on the spot market. Contracts are down 6(cent)/lb from Q4 of 1997 and are forecast to increase only slightly to 28(cent)/lb by this time next year. Tags have followed a similar pattern, falling from 31(cent)/lb at the end of 1997, to the current 26(cent)/lb. Purchasing expects tag prices to drop to about 24(cent)/lb by Q2 1999, before rebounding to almost 30(cent)/lb by the end of next year.
Prices are at 53(cent)/lb for dispersion resin contracts and 51(cent)/lb for dispersion resin tags. PVC film prices have stabilized at 36(cent)/lb for both contracts and tags, according to buyers who respond to our monthly transaction price survey.
The announced price increase has gone against the traditional buying pattern of the construction industry, which accounts for about 80% of the market for PVC products.
One Wisconsin buyer doesn't believe that a price increase for PVC dispersion resins will hold up to the market. He says, "Prices have been dropping for close to a year now. I don't see them rising again until late spring of next year at least, when demand for piping and construction materials picks up."
An East Coast PM agrees that the proposed price hike will likely not hold up, "The market has been softening in the past few months, and I believe it will continue to soften before leveling off in the first half of next year."
"It's strange that they [producers] would call for a price increase now, with demand slow because of the Asian economy and the seasonal downturn of the construction industry," says an East Coast chemical market analyst, "But I wouldn't rule out a price increase in the near future."
While producers continue to push for the price increase, look for actual prices to remain right where they are until the second quarter of 1999, when demand from the resurgence of domestic construction will begin to catch up with supply.
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