The North American polyvinyl chloride (PVC) market has tightened since fall 2003, causing producers to pursue several price increases. PVC list prices rose 25% through November 2004 while transaction prices jumped by 14%. Producers have announced another round of price increases through January.

The reason? Demand has been strong, supported by the continuing boom in housing construction (PVC's main outlet), and some pre-buying by plastic converters as a protection against further price increases. The cost of vinyl chloride monomer (VCM), the key PVC raw material, has shot up as well—owing to the rise in ethylene and energy prices. Chlorine prices, which had weakened in the second half of 2003, also have surged in 2004.

Analyst Frantz Price at Global Insights forecasts PVC use to increase by less that the 6.5% average of 2004. But, he is bullish on PVC pricing, suggesting that even though growth may moderate, demand remains strong enough to tighten supply. "We expect housing construction to trend down over the next couple of years as mortgage rates creep up and pent-up demand diminishes," he says, "but commercial construction and municipal pipe demand will improve along with other PVC markets."

As a result, Price expects PVC prices to remain strong in 2005—as long as feedstock costs continue to firm. In addition, the Global Insight economist expects North America's PVC nameplate operating rates to rise from 85% in 2003 to 90% in 2004, and then to the mid-to-high 90s in 2005–06. A caution: Any production disruptions for either VCM or PVC—such as Dow Chemical's impending 1.9-million lbs/year cutback in its VCM capacity by the end of 2005—could squeeze PVC supply even further and push prices even higher.