Industry

Declining PVC price drives core delta downwards

Karachi, September 14, 2022: Economic slowdown, prolonged monsoon season and increased output from China have resulted in significant decline in PVC-Ethylene core delta on a YTD basis.

The PVC-Ethylene delta declined by 55.3% YTD from US$978/ ton in Dec’21 to US$438/ ton on account of a sharp drop in PVC prices (-37.2% YTD) while ethylene prices remained relatively stable (-1.9% YTD) during the period.

China is the largest PVC producer in the world with a total capacity of 25-26mn tons/annum. Almost 55%-60% of Chinese PVC goes into the construction industry for manufacturing pipes, fittings, doors, windows, panels, and other rigid products.

The real estate crisis in China followed by COVID-19 resulted in a sharp decline in property investment and construction activity. Chinese PVC plants, on the other hand, were running at higher capacity utilization from last year in anticipation of greater demand on the back of economic recovery post COVID.

With slow demand at home, Chinese exporters aggressively pushed the product in regional markets creating a supply glut, eventually leading to a sharp fall in PVC prices.

Ethylene prices, however, remained relatively stable on a YTD basis, owing to higher crude oil prices and healthy demand from downstream industry. Ethylene prices remained on an upward trajectory during 1QCY22; however, the trend reversed from 2QCY22.

More recently, ethylene prices have started picking up on back of expected supply tightening due to scheduled turnarounds at several naphtha crackers during the coming months.

Higher PTA prices led to improved PTA-PX margins

PTA-PX margins, on the other hand, have improved 20.1% YTD from US$154/ton in Dec’21 to US$185/ton on account of a relative increase in PTA prices (19.8% YTD) against PX prices (19.7% YTD).

PTA prices increased due to stable demand from packaging industry (PET Bottles) in the region along with a lower rate of production in China due to COVID restriction.

Moreover, permanent closure of a 650k ton plant in East China also contributed to the price increase. Similarly, PX prices also increased on account of higher naphtha and crude oil prices as the two are highly correlated.

Outlook

“We expect PVC prices to remain subdued in the near term on account of economic slowdown, reduced construction activity and build-up of inventories in regional countries.

“Ethylene prices, on the other hand, may continue their upward trend in the near term on account of scheduled turnarounds in the region. PVC Ethylene Core Delta averaged at US$551/ton in 3QCY22 TD against our assumption of US$650/ton for 3QCY22,” said Faisal Irfan at JS Research. He added that this reflects a 29.6% decline as compared to 2QCY22 average of US$784/ton. PTA and PX prices are, however, expected to remain stable in the near term due to higher oil price and stable demand from packaging and textile industries.

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