Asian Benchmark Price for PVC Drops on Weak Chinese Demand

Growing stockpiles of chlorine are dragging down prices across Asia of polyvinyl chloride, a major chemical product used for building materials and water pipes.

Taiwan's leading industrial conglomerate Formosa Plastics has set its export contracts of polyvinyl chloride to India at $940 dollars per ton in May, 10% less than in April. The chemical is often abbreviated as PVC, and Formosa Plastic's contract prices are used as the benchmark.

Price declines are being caused by China's slowing construction activities, while its aluminum refining remains robust. Aluminum refining requires caustic soda, a byproduct of chlorine. When chlorine is incidentally produced in that process, chemical makers have little choice but to quickly use it to make PVC, because the chemical is unstable and hard to be stored.

As chemical companies continue to produce a large amount of caustic soda to meet Chinese demand, the Asian market is thus left with an oversupply of PVC.

The downward momentum of PVC could become a headwind for Japanese chemical makers to pass-through rising costs. PVC prices previously in the Asian market had been increasing, supported by strong demand from India and rising costs for its primary ingredient naphtha.

To reflect rising prices, Japanese chemical makers finally started to raise PVC prices by 10 yen ($0.09) per kilogram. It was the first time in three years that they increased prices.

Before prices started to decline, Japan's largest PVC maker Taiyo Vinyl said "price increases will continue as long as a price gap among domestic and overseas markets exists."