A monthly uptick in housing starts together with a modest decline in permits in April suggest US housing construction may be stabilizing, a dynamic that has given PVC a needed demand floor while still limiting stronger future growth.
Privately-owned housing starts rose to a seasonally adjusted annual rate of 1.401mn units in April, 2.2pc above the downwardly revised March estimate of 1.37mn units but still 22.3pc below April 2022, according to the US Census Bureau and the Department for Housing and Urban Development (HUD).
Single-family housing starts hit their highest of 2023 in April at a rate of 846,000, 1.6pc higher than the revised March 2023 figure but still 28.1pc below April 2022. Starts for units of five or more increased 5.2pc to a rate of 542,000 in April, the second highest monthly rate of 2023, but were still 11.7pc below the April 2022 rate.
The relative stability in home building data came alongside steadying demand for the PVC market more broadly, leading to April PVC contracts prices settling flat. PVC prices held firm at 61.5¢/lb in April after rising by 2¢/lb in the first two months of the year.
Future Demand
Housing permits, an indicator of future construction, were at a seasonally adjusted annual rate of 1.416mn units in April. That is 1.5pc below the revised March rate of 1.437mn and 21.1pc below April 2022's rate of 1.795mn.
It's the second straight month of declining permits, but April's decline was slightly shallower than March's.
Single family permits were at a seasonally adjusted annual rate of 855,000 in April, 3.1pc higher than March's revised rate of 829,000 and the highest monthly rate since September 2022.
Single-family housing permits have risen for four straight months, a positive sign of market recovery, though April's rate was still 21.2pc below the year prior.
Permits for units for housing units of five or more fell by 9.7pc to 502,000 from the prior month and were down 23pc from April of the previous year.
The stabilization in parts of the housing market pushed builder confidence in May to a key marker. Builder confidence grew 5 points to a score of 50, according to the National Association of Home Builder (NAHB)/Wells Fargo Housing Market Index (HMI). Anything at or above a 50 indicates positive sentiment.
PVC Outlook
Still, PVC demand remains mixed for May, according to many producers. Ordering patterns are inconsistent as converters and buyers try to anticipate demand and manage inventories at a time when activity in key sectors like construction is leveling out as opposed to growing. For many buyers, price expectations are flat to lower for the rest of 2023. The belief 2023 will be a corrective year to prior market trends is permeating throughout the market.
In a more positive sign, inventories of finished goods, a sticking point for many PVC buyers facing the housing market, have begun to thin in recent weeks. Some buyers have said they plan to increase their ordering and operations as a result, but this trend hasn’t cropped up universally in the industry yet.
PVC producers are fighting for another rollover for contract prices in May, arguing PVC supply is relatively balanced. Many buyers are advocating for a sizable price decrease, either in May or June, as positive sentiment regarding the housing market has dissipated for many downstream participants. Demand is still expected to improve over the summer, but the ceiling to this growth is falling lower and lower as the peak construction window progresses.
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