US polyvinyl chloride (PVC) producers are weighing operation cutbacks in February after grappling with deteriorating sales margins underpinned by elevated feedstock costs and stagnant end-product values.
PVC producer profitability eroded in January as prices for key feedstock ethylene leapt to four-month highs by mid-January, various sources said. Ethylene is a main component in ethylene dichloride (EDC) manufacturing, which is then cracked into vinyl chloride monomer (VCM) before being converted into PVC.
Some domestic PVC production is fully integrated and feature ethylene crackers, but many producers still purchase spot or contract ethylene and remain exposed to price fluctuations in the spot market.
Spot US ethylene prices to-date in January have averaged 18pc higher than in December and 66pc higher than in January 2024, according to Argus data. Meanwhile, PVC spot values in Houston appreciated at a much slower rate between December and January, climbing by 1pc.
Elevated ethylene spot prices are expected to persist in the near-term, maintaining pressure on PVC margins, due to planned maintenance and recovery from unplanned shutdowns in mid-January stemming from sub-freezing temperatures that gripped the US Gulf coast.
The expectation for ethylene values to persist at current levels is anticipated to result in PVC production cutbacks, according to several exporters. Some producers, though, remain incentivized to maintain operating rates after bringing online expanded capacity last year.
Formosa and Shintech collectively brought more than 500,000 metric tonne (t)/year of new PVC capacity on line during the second half of 2024. The ramp up in added capacity coincided with increasing trade barriers into key offshore destinations, which is expected to keep more volumes within the US while consumer demand outlooks this year remain cautiously optimistic.
US buyers are unsure if domestic demand will be strong enough in 2025 to absorb additional volume, placing a ceiling on upward price direction. Exporters are even less optimistic operating in a global market increasingly defined by anti-dumping duties and plentiful Chinese supply.
Domestic contract negotiations have highlighted the contrast between higher operating costs and a well-supplied PVC market. Producers cited higher operating costs to argue against lower contract negotiations in January, especially after prices fell in October and November.
Several producers announced increases for February volumes, with some rising as high as 5¢/lb. But buyers said current demand does not support increases and instead view price hikes as to recapture lost margin.
While producers sought price stability for January monthly contracts, they are also competing to lock in volume commitments through 2025 with aggressive annual contract discussions. Producers are trying to establish a price floor domestically by limiting price erosion among already-low-priced customers, but the additional capacity has made steeper price concessions difficult to avoid in other instances.
One evolving upstream market variable is a firmer US Gulf coast spot export caustic soda market, which could encourage producers to maintain current rates and delay any cuts.
Integrated PVC producers also manufacture chlorine and caustic soda through chlor-alkali units. Caustic soda is a co-product of chlorine — the latter a key feedstock in EDC production — and price swings in chlorine or caustic soda values can influence production decisions for PVC manufacturers.
Caustic soda export prices from the US Gulf coast this week rose by $10/dry metric tonne (dmt) from the prior week and remains 8pc higher than the same week last year, according to Argus data. Tightened spot supply availability is a tailwind for spot values in the near-term, but values remain 24pc lower than peak levels in September when caustic soda prices last offset tighter PVC margins.
