Lower feedstock costs and slumping end-product demand sent North American PVC prices down an average of 3 cents per pound in September.
The drop comes after the region's PVC makers had driven prices up 14 cents per pound in the first seven months of 2008. But tumbling prices for natural gas and crude oil have taken down prices for PVC feedstock ethylene as well.
Crude oil futures peaked at $147 per barrel in mid-July, but prices had fallen under $63 in early trading Oct. 24. That's a drop of about 53 percent from the peak. Cash prices for natural gas — used to make most North American ethylene feedstock — were above $13 midyear but near $6.35 early Oct. 24.
U.S. housing starts in August fell to an annual rate of 895,000 units — the slowest production pace in more than 17 years. U.S. housing starts peaked at almost 2.1 million in 2005, but fell to 1.8 million in 2006 and to less than 1.4 million last year. Construction accounts for more than half of North American PVC sales.
``People just aren't buying a ton of PVC right now,'' said Mark Kallman, a market analyst with Resin Technology Inc. in Fort Worth, Texas.
``Some [processors] are coming out of pre-buys and they're coming back into the market slow because of the expectation of lower prices. So the market is muddier than usual,'' Kallman said.
Some pipe makers ``are lucky if they're running at 30 percent'' of capacity, one Midwestern PVC buyer said. Another buyer, in the Southeast, said demand at his firm was soft in 2008 and he didn't expect much of a rebound before mid-2009 at the earliest. Several buyers said they believed PVC resin prices could fall in October as well.
U.S./Canadian PVC sales were down 3 percent in the first seven months of 2007, according to the American Chemistry Council in Arlington, Va. That incorporates a 10 percent drop in the domestic market and a mountainous gain of 72 percent in export sales.
The domestic drop reflects a 16 percent plunge in the dominant rigid pipe and tubing category, and drops of 9 percent each in siding, extruded windows and doors, and fencing and decking. Construction- related applications accounted for about two-thirds of domestic PVC sales through July.
Sales of PVC to compounders provided a bright spot, up almost 14 percent through July, and adding about 50 million pounds of demand.
In spite of the recent demand slump, capacity expansions by Shintech Inc. in Addis, La.; Westlake Chemical Corp. in Calvert City, Ky.; and Formosa in Point Comfort, Texas, will add almost 1 billion pounds of PVC capacity in North America in 2009. That equals an increase of about 5 percent in overall market capacity — even after Georgia Gulf Corp.'s recent closing of 500 million pounds of capacity in Oklahoma City is taken into account.
Regional PVC makers have said that resin not consumed within North America could be exported to Asia and other parts of the world. But RTI's Kallman said those expectations might change, as the economic slowdown makes its way around the world.
``Some of the logic behind these [PVC] expansions has been undercut,'' Kallman said. Resin makers ``were anticipating this unstoppable growth engine in Asia, but it's not really there.''
``The [U.S.] dollar also is gaining on value vs. other currencies, and when you put that together with everything else, it reduces export opportunities from North America.''