The recovery of global PVC demand needs to 'look east'

Entering 2023, due to sluggish demand in various regions, the global polyvinyl chloride (PVC) market still faces uncertainties. During most of 2022, PVC prices in Asia and the United States showed a sharp decline and bottomed out before entering 2023. Entering 2023, among various regions, after China adjusts its epidemic prevention and control policies, the market is expecting a response; the United States may further raise interest rates in order to combat inflation and curb domestic PVC demand in the United States. Asia, led by China, and the United States have expanded PVC exports amid weak global demand. As for Europe, the region will still face the problem of high energy prices and inflation recession, and there will probably not be a sustainable recovery in industry profit margins.

Europe is facing the impact of economic recession

Market participants expect that the European caustic soda and PVC market sentiment in 2023 will depend on the severity of the economic recession and its impact on demand. In the chlor-alkali industry chain, the profit of the manufacturer is driven by the balancing effect between caustic soda and PVC resin, where one product can make up for the loss of the other. In 2021, both products will be in strong demand, with PVC dominating. But in 2022, PVC demand has slowed as chlor-alkali production has been forced to cut load amid soaring caustic soda prices due to economic difficulties and high energy costs. Chlorine gas production problems have led to tight caustic soda supplies, attracting a large number of orders for U.S. cargoes, pushing U.S. export prices to their highest level since 2004. At the same time, PVC spot prices in Europe have fallen sharply, but will remain among the highest in the world until late 2022.

Market participants expect further weakness in the European caustic soda and PVC markets in the first half of 2023 as consumer end-demand is dampened by inflation. A caustic soda trader said in November 2022: "High caustic soda prices are causing demand destruction." However, some traders said that the caustic soda and PVC markets will normalize in 2023, and European producers may benefit during this period For high caustic soda prices.

Decline in U.S. demand boosts exports

According to market sources, entering 2023, integrated chlor-alkali producers in the United States will maintain high operating load rate production and maintain strong caustic soda prices, while PVC prices and weak demand are expected to continue. Since May 2022, the export price of PVC in the United States has dropped by nearly 62%, while the export price of caustic soda has climbed by nearly 32% from May to November 2022, and then began to fall. U.S. caustic soda capacity has fallen by 9% since March 2021, largely due to a series of outages at Olin, which also supported stronger caustic soda prices. Entering 2023, the strength of caustic soda prices will also weaken, although the rate of decline may be slower.

Westlake Chemical, one of the U.S. producers of PVC resin, has also reduced its production load and expanded exports due to weak demand for durable plastics. While a slowdown in U.S. interest rate hikes could lead to a rise in domestic demand, market participants say the global recovery depends on whether domestic demand in China rebounds.

Pay attention to the recovery of China's potential demand

The Asian PVC market may rebound in early 2023, but market sources said that if Chinese demand does not fully recover, the recovery will still be limited. PVC prices in Asia will fall sharply in 2022, with quotations in December of that year hitting the lowest level since June 2020. Those price levels appear to have spurred spot buying, raising expectations that the slide may have bottomed out, market sources said.

The source also pointed out that compared with 2022, the spot supply of PVC in Asia in 2023 may remain at a low level, and the operating load rate will be reduced due to the impact of upstream cracking production. Trade sources expect the flow of US-origin PVC cargo into Asia to slow in early 2023. However, U.S. sources said that if Chinese demand rebounded, leading to a reduction in Chinese PVC exports, it could trigger an increase in U.S. exports.

According to customs data, China's PVC export volume reached a record 278,000 tons in April 2022. China's PVC exports slow down later in 2022, as US PVC export prices fall, while Asian PVC prices fall and freight rates plummet, thereby restoring the global competitiveness of Asian PVC. As of October 2022, China's PVC export volume was 96,600 tons, the lowest level since August 2021. Some Asian market sources said Chinese demand will rebound in 2023 as the country adjusts its anti-epidemic measures. On the other hand, due to high production costs, the operating load rate of China's PVC factories has dropped from 70% to 56% by the end of 2022.