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North American PVC prices up, but polypropylene drops

By: Frank Esposito

March 28, 2013

AKRON, OHIO -- If you were a North American resin buyer buying both PVC and polypropylene resin in March, you might be wearing a neck brace right now.

That's because PVC prices in the region jumped up a nickel per pound, while PP prices slid by an average of 6 cents. Whiplash was a definite possibility.

The PVC hike is the second in as many months, following a 3-cent increase in February. Processors are continuing to build resin inventory in advance of construction season.

"We're planning on the 5 [cents] for March and flat for April," a buyer in the Southern U.S. said. "There's some talk about May but the market will have to pick up to see any additional increases." The buyer added that although overall U.S. sales volume is good, sales of PVC on the East Coast have been sluggish so far in 2013.

U.S./Canadian PVC sales got off to a rousing start in 2013, jumping more than 8 percent in January, according to the American Chemistry Council in Washington. That increase included a 4.5 percent uptick in domestic sales and a surge of more than 15 percent in export sales.

The domestic sales increase was all the more impressive because it came even as sales in PVC's dominant rigid pipe and tubing end market slid more than 1 percent vs. the same month in 2012. Even with the decrease, rigid pipe and tubing accounted for almost 45 percent of domestic PVC sales in January, according to ACC.

Big sales gains in film and sheet and siding-related markets helped to pick up the slack and lift domestic sales into positive territory for the month. PVC sales into film and sheet leapt almost 35 percent, while siding-related sales bounced up almost 14 percent. Film and sheet accounted for almost 7 percent of domestic PVC sales for the month, with siding-related applications generating almost 8 percent.

North American PVC prices now are up an average of 8 percent so far in 2013 after showing a net increase of about 2 percent for full-year 2012. The market continues to benefit from low-priced feedstock derived from growing supplies of shale-based natural gas throughout North America. PVC's benefit is doubled, since ample gas supplies drive down costs for the electricity needed in chlorine production.

U.S. housing starts were at an annual pace of more than 900,000 in the first two months of 2013. If that pace holds, it would represent an increase of more than 15 percent vs. 2012, when housing starts were up more than 30 percent vs. 2011. Those numbers are a big deal for PVC, since construction-related applications accounted for almost 60 percent of all domestic sales in January.

"While painful, there is nothing unusual at all about PVC prices going up this time of year," market watcher Phil Karig wrote in an e-mail. "PVC is a highly seasonal resin that is dependent upon the peak housing and construction season to start revving up domestic demand every year."

"While you would never know it from the generally gloomy mood in the media, the housing market has bottomed out in the U.S. and that means the 2013 construction season, as well as the 2013 PVC market, will be both better than expected," added Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis.

"In addition, North American PVC producers have a real feedstock cost advantage due to low cost natural gas and that is powering PVC exports. The combination of good export demand and a better than expected construction season make the recent PVC increases anything but a surprise."

For PP, the volatility earthquake continues to rumble, as the 6-cent drop erased an identical increase that took hold in February. This up-6/down-6 dance happened was after a 15-cent hike slammed the market in January. Even with the six-cent March drop, regional prices remain up about 14 percent so far in 2013.

Buyers and market watchers again blamed the grim specter of propylene monomer for the latest drop in PP prices. Resin prices have followed monomer in lockstep for at least the last two years.

"Monomer supplies are improving as we come out of [maintenance] turnaround season," market analyst Scott Newell wrote in an e-mail. "There was also a big demand response to the 21 cents of increases in January and February."

"PP producers are cutting rates in response to the weaker PP demand," said Newell, who is with resin Technology Inc. in Fort Worth, Texas. "Prices are now responding lower and April will see further price decreases."

The weak PP demand Newell referred to was apparent in ACC's January report. North American sales for the month tumbled 9 percent, with domestic sales slipping more than 7 percent and export sales plummeting almost 49 percent.

Among major PP end markets, sales into injection molded rigid packaging fell more than 12 percent in January. That drop included a decline of almost 22 percent into sales of PP into caps and closures.

Mathelin Bay's Karig added that PP prices "are just on the latest leg of their multi-year roller coaster ride."

"Steep polypropylene price increases at the start of 2013 simply choked off demand — domestic and export," he wrote. "When incremental propylene monomer supply started to come back on-line, the lack of demand meant there was nowhere for PP prices to go except sharply down."

Help could be on the way for the PP market in the form of more propylene supply coming from "on-purpose" propylene production units making monomer through propane dehydrogenation (PDH) technology. These new units — including ones planned by Dow Chemical and Williams Cos. — are designed to take advantage of new propane supplies generated by natural gas. Market watchers are hoping these new propylene supplies could ease pricing volatility for PP.

And even though the North American pricing fortunes of PVC and PP went in different directions in March, speakers at the recent IHS World Petrochemical Conference said that new North American capacities for both materials are expected to hit the region by 2017.

Although no such projects have been announced, speakers said new capacity would make sense economically and allow those materials to benefit from new natural gas-based feedstocks in the same way that polyethylene makers are expected to.