Strong demand, tight supply prompt price hikes
By Staff -- Purchasing, 11/4/1999
Prices for polyvinyl chloride (PVC) appear to be on the rise. Demand for PVC has remained strong due to a robust economy and domestic construction market, and supply has become tight, according to analysts and producers.Analysts say demand this year for PVC has been exceptionally strong. "Total domestic sales of PVC were up 6% in July alone, and they were up 6.9% for July year-to-date, whereas exports were off 27.8% in July and off 36% in July year-to-date," says petrochemicals analyst, Earl Simpson at The pace Consultants, Inc., in Houston, Texas.
Fluctuations in PVC demand are typically seasonal in nature, which accounts for surging demand in the first and second quarters of 1999 due to the lag time when pipe producers gear up for summertime demand increases in the construction markets.
In response to this, producers have nominated a 2¢/lb price increase for PVC material to take effect in October. The price hike follows increases already on the table for July and August, which were to be implemented in August and September of this year.
One market analyst believes the strong demand will continue in 2000. "As long as the U.S. economy continues to show strength, housing starts stay up, and demand is good for vinyl siding, we do not expect PVC to have much relief," says Robert Bauman at IBM ChemSystems, Tarrytown, N.Y.
Purchasing's forecast: Buyers can expect tightening PVC supply through the end of the year. Look for prices to soften slightly in the early months of 2000, due to a seasonal lessening of demand, before gradually increasing through the third quarter.
Buyers responding to Purchasing's monthly chemical price transaction survey place current contracts for U.S. bulk dispersion resins at about 49¢/lb. Spot tags currently average about 51¢/lb. Buyers expect contract prices to increase to 51¢/lb in the fourth quarter, then slide to 49¢/lb in the first quarter of 2000. Similarly, spot-market prices will average about 1¢/lb more (52¢/lb) in the fourth quarter, before slipping to about 49¢/lb, according to data from buyers.
For film-grade PVC, current prices average 37.3¢/lb for contracts and about 34¢/lb in the spot market. Buyers forecast prices to rise to 39¢/lb and 42¢/lb respectively in the fourth quarter, before slipping to about 34¢/lb for contracts and 40¢/lb for spot tags in the first quarter of next year. After that, buyers will likely see prices average 40¢/lb for contracts and 42¢/lb for spot tags by the end of 2000.
General-purpose grade PVC prices have risen from about 21.3¢/lb for contracts and 20¢/lb for spot tags at the beginning of the year, to about 27.3¢/lb for contracts and 32¢/lb for spot tags, currently. Buyers expect prices to average 31¢/lb for contracts and 35¢/lb for spot tags by year-end. After that, contract prices will increase to about 35¢/lb, where they will remain flat through the end of the year.
Tightened supply
While demand has been strong, one of the main reasons prices will rise, say analysts, is that there is very little new capacity planned to come on stream in the next two years.
"The PVC business has been down for so long that no one has invested in new capacity, and this is true globally," says pace's Simpson. "The only major expansion of PVC production is Shintech's new unit in Plaquemine, La.," he says. "That plant, when completed in early 2002, will bring about 900-million lb/yr of capacity on line."
"There has been a depletion of inventory on the finished side as well as the producers side," says David DiPiero, PVC business director for Formosa Plastics Corp., USA in Livingston, N.J. "Everyone's working on backlog. This means that as soon as people can get resin, they convert it and they're still behind on their orders," he says.
"I am getting calls routinely from buyers who are trying to secure PVC volume," DiPiero says. "So, I think the current situation will continue in 2000. People are going to be looking for resin anywhere they can find it," he says. "The momentum looks good for producers for the next 18 months."
As a result of this momentum, DiPiero believes that PVC resin prices will continue to escalate in 2000. "I think the producers will continue to announce their typical 2¢/lb price increases," he says. "Although, buyers may see producers announce 6¢/lb increases for the quarter, spread out as 2¢/lb increases for each month," DiPiero says.
IBM Chemsystems' Robert Bauman agrees that price increases are on the way in 2000. "Additional price increases will likely be announced during the first quarter of 2000," he says. "How much prices increase depends on the extent of producer inventory building."
"Compared to the other polymers, I would say that PVC has not had as pronounced a set of pricing jumps," says Bauman. "For instance, polyolefin prices have gone up between 50% and 60% this year in tremendous jumps, with more on the way," he says. "I think we'll see PVC prices moving up steadily in 2000."
In supply news, Condea Vista Co., based in Houston, Tex. has sold its PVC business to Georgia Gulf Corp., Atlanta, Ga., for $270 million. Under the agreement, Georgia Gulf will acquire PVC production facilities in Lake Charles, La.; Oklahoma City, Okla., which combine for a 450-million lb/yr PVC resins capacity, and three other plants in Aberdeen, Miss.; Mansfield, Mass.; and Jeffersontown, K.Y., which have a combined capacity of 265 million lb/yr.
Georgia Gulf also will purchase Condea's 50% stake in PHH Monomers, the Lake Charles, La.-based JV with PPG Industries Inc., in Pittsburgh, Pa., which makes vinyl chloride monomer (VCM) feedstock for PVC.
According to analysts, the deal will make Georgia Gulf the third largest PVC resin and VCM producer, as well as the second largest plastics compounder in North America.
Also, Cary Compounds LLC, of Farmingdale, N.J., has entered the PVC compounding market after leasing an 80-million lb/yr facility in Dayton, N.J. According to a recent press release, the company will concentrate its business on PVC wire and cable compounds.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
