Asian vinyls market expected to be bearish in 2016 on continued imbalance

The imbalance of the Asian vinyls market, including ethylene dichloride, vinyl chloride monomer and PVC, looks likely to become worse in 2016 as EDC supplies become tighter, while VCM and PVC remain oversupplied, industry sources said.

PVC supply in the region has been more than ample with the startup of new plants in Asia, especially in China.

Chinese PVC plants, which use coal as a feedstock, has led to a supply glut and it has been exporting in a bid to reduce stocks.

Japan’s Ministry of Economy, Trade and Industry said the Asia had 1.11 million mt of PVC surplus in 2014, which is expected to have risen to 1.16 million mt in 2015 and is expected to hit 1.5 million mt in 2016.

China exported 1.136 million mt of PVC in 2014 against imports of 550,015 mt, according to customs data.

In line with rising PVC supplies, margins have been weakening. Asian PVC margins turned negative from 2014, with the PVC-VCM spread averaging $134.52/mt, narrower than the $150/mt needed for breakeven. From 2011-2013, the spread hovered around $155-160/mt.

Market sources said Asian PVC supply was likely to increase in 2016 with more new plants scheduled for startup. Indonesia’s Asahimas plans to startup its new 250,000 mt/year PVC unit in Anyer in the first quarter of next year. Asahimas is likely to start selling PVC as early as January.

In addition, supplies from the US are also increasing. China’s PVC imports from the US over January-September were 183,566 mt, rising 3.9% from a year earlier, according to Chinese customs data.

Platts data showed that Asian PVC price has averaged $837/mt so far in 2015, compared with an average of $1,018.54/mt in the whole of 2014.

Some market sources said some material may be absorbed by Australia, where a PVC plant is due to be shut permanently early next year. Australian Vinyls plans to mothball its 130,000 mt/year PVC unit in Laverton, Victoria, by early 2016. A market source said Australia would increase PVC imports following the shutdown but fresh requirements are still unclear.

VCM TIGHTNESS EXPECTED TO EASE

Structurally, the Asian VCM market is short. Japan’s METI has forecast that Asia would be short of 209,000 mt of VCM in 2016, compared with 266,000 mt in 2015 and 534,000 mt in 2014.

Chinese customs data showed strong demand for VCM imports in 2015. China imported 624,859 mt of VCM over January-September, up 20.1% year on year.

On the other hand, Asian VCM prices fell in 2015. According to Platts data, CFR Far East Asia VCM has averaged $693.28/mt so far in 2015, falling 21.6% from the average price for the whole of 2014.

Asian VCM is seen to be under pressure in 2015 in line with a bearish PVC market and this is to continue in 2016.

On the other hand, EDC supply is expected to become tighter, following the startup of new Indonesian VCM plant.

Japan’s METI has forecast EDC deficit in the region at 1.29 million mt in 2016, up 12.8% from 2015.

Market sources see Asahimas cutting its exports of EDC, a feedstock for VCM, after the startup of the new VCM plant.

Despite supply tightness, Asian EDC prices are not expected to go up due to the expected influx of US cargoes.

China imported 480,232 mt of EDC over January to October this year, down 17.5% from a year earlier, according to customs data. China’s EDC imports from the US over January-October were 304,240 mt, down 25.2% from the previous year.

Platts data showed that the CFR Far East Asia EDC averaged $288.53/mt so far in 2015, down from the average of $444.15/mt in the whole of 2014.