Spot VCM prices shoot up in the US, buy ideas slide in Asia

10. Mar. 2010

Recent developments in global ethylene markets, which have seen US ethylene prices soaring to new heights and tumbling prices in major Asian markets, have begun to have an impact on spot VCM markets, which are in turn likely to lead to changes in global PVC pricing.

In the US, the January and February monthly ethylene contracts were settled at the beginning of March with a cumulative increase of $210/ton over their December level, while spot prices have also exhibited strong upward movement in the early months of 2010. Spot ethylene prices posted a cumulative increase of $475/ton in the first two months of the year and have already posted further increases of $250/ton in the first full week of March. Reacting to the sudden spike in ethylene feedstock costs, VCM sellers in the US have raised their offers as well. Spot VCM offers for export were reported $150/ton higher on a week over week basis, with much of the impetus for higher VCM prices coming from stronger ethylene costs. Although delayed purchases of spot ethylene have helped mitigate the impact of the rise in ethylene costs on downstream markets, one EDC producer has already predicted that the massive upward shift in production costs will soon make itself felt on spot PVC prices in the US, which may affect their competiveness in global markets, where American PVC sellers had been enjoying cost advantages throughout much of 2009.

Meanwhile, declining spot ethylene prices in Asia have begun to take their toll on the region's VCM market. At the end of February, a major Japanese producer announced their VCM offers for March with increases of $40-50/ton when compared with their February done deal levels. The producer justified their increase targets by pointing to higher March PVC import offers to the Chinese market, which posted similar month-over-month increases. Although March PVC business has been finalized at or close to producers' initial offer levels, buyers are showing stiff resistance to higher VCM prices. Although buyers generally attributed their resistance to softening PVC prices in China's domestic market and signs of softening regional demand, falling ethylene prices are also supportive of buyers' resistance to higher VCM offers. Spot ethylene offers to Northeast Asia declined around $50-70/ton over the past week, bringing the cumulative decline from early February to around $180-190/ton.
[Chemorbis]