Buyers: Slow market won't see February hike

By Staff -- Purchasing, 4/5/2001

The PVC market is in the doldrums. Slow demand from the major end-use markets, a slowing U.S. economy, and a wealth of material available on the market have caused price to slide about 5¢/lb to 7¢/lb on average in the past year.

And while producers attempt to stabilize the slide by tightening supply and announcing price increases, most buyers still see slight downward price pressure in the market before pricing stabilizes in the mid- to late-second quarter of 2001.

Richard Sylvester, purchasing manager at Canton, Mass.-based Plymouth Rubber Co., a supplier of wire harness tape to the automotive and construction markets, says that most buyers saw producers announced a 3¢/lb increase for PVC material, scheduled to take effect in February. However, he says that market conditions simply will not support any PVC price increase at this time.

"Our business is off for the first quarter, suppliers' business is off, everyone's business is off," he says. "And with Shintech's capacity expansion in December 2000 of 600 million lb/yr, producers are in a tough situation because there's just too much material available for them to pass higher operating costs on to buyers," Sylvester says.

According to buyers responding to PURCHASING 's monthly survey of chemical transaction prices, PVC dispersion contracts dropped from about 55¢/lb during the second quarter of last year to about 51¢/lb now. Dispersion resin-grade spot tags fell from about 51¢/lb to about 44¢/lb in the last year. Film-grade PVC contracts and spot prices fell about 5¢/lb to an average of 39¢/lb (contracts) and 36¢/lb (spot tags) for the same time period. The price slide for general-purpose-grade material was a little more pronounced. According to our data, contract and spot price averages fell about 7¢/lb to 8¢/lb in the past year from price averages of 44¢/lb and 41¢/lb for contracts and spot tags, respectively, during the first quarter of 2000.

In the coming months, buyers see prices for all PVC grades beginning to stabilize. And during the third and fourth quarters of this year, buyers expect prices to firm up, possibly by 1¢/lb to 3¢/lb.

Producers have been trying to tighten supply by cutting back their operating rates in order to stabilize the pricing slide. According to data from Houston-based petrochemical market research firm, The Pace Consultants Inc., operating rates have dropped from about 91% during the first quarter of 2000, to about 86% now. Plymouth Rubber's Richard Sylvester says that his suppliers are operating at even lower rates (between 75% and 77% of capacity).

Jerry Davis says that the price slide for the PVC market has been largely due to the shift in the overall economy and has flown in the face of the typical market trend. "The price cycle for PVC tends to decrease or remain flat during the first half of the year and increase during the third and fourth quarters, in line with seasonal demand trends from the North American construction and new home markets," says Baxter's Jerry Davis. "However, producers have missed out on price increases in the past two quarters," says Davis.

Most market observers agree that how long it takes for supply and demand to come more in balance will depend upon the performance of end-use demand from the construction market. Plymouth Rubber's Sylvester says that some improved demand could be seen in this market as early as late second quarter 2001 with warmer weather. But he also warns: "If the Federal Reserve's plan to cut interest rates doesn't pay off, the PVC market will be in for a very rough ride through the end of the year."