European PVC producer attempts to expand margins in August were being challenged by the level of weak demand in both the Europe and the Turkish markets, according to suppliers.
This failure was driven by weak end-consumer demand, with discretionary spending on big ticket items such as construction limited by still high interest rates.
Consuming PVC units were shutting shop amid a lack of orders in a seasonally low demand month as number of converter maintenances and the return of buyers from their summer holidays.
The middle of August signals the start of the summer holiday season and the time when Southern European consumers tend to shut their plants to conduct scheduled maintenance stops amid low orders. One source pointed to the raft of planned and unplanned PVC maintenances as balanced out by the weak August demand.
Producers so far in the middle of the month were only confident of achieving an increase of no more than Eur20-25/mt in August contracts, in line with the ethylene delta.
"August is still a slow month," a producer said. "There is not enough demand, and some attempts for margin improvements are offered together with lower priced spot volumes."
Another producer agreed.
"Of course, we are trying to increase prices in August above the partial cost increase by ethylene delta movement because margins need an improvement," he said. "Nevertheless, demand in August is not really supporting that."
Despite the need to recover margins lost over the course of more than a year, conditions appear challenging. While there have been signs of improvement in Germany in recent months, demand remains sluggish.
High interest rates continue to impact disposable incomes and spending on large-scale projects such as home improvements and high-end infrastructure construction projects, as governments also continue to restrict expenditure amid high financing costs. Sources said that although interest rates had decreased in recent months, more than just one interest reduction would be required to stimulate demand.
Platts assessed the FD Germany PVC freely negotiated August net contract price at Eur935/mt, while FD Northwest Europe spot prices were assessed at Eur840/mt Aug. 14, unchanged on the week and from the end of July. Contract prices this week were seen in line with a producer's contract price indication heard at Eur935/mt, but below the increases in settlements heard at Eur20-25/mt from some producers, with the majority of settlers absent from their desks.
Platts is part of S&P Global Commodity Insights.
July demand pickup coincides with cut in competitive imports
Producers were able to achieve margin increases in July, amid a backdrop of stable monomer pricing, and the perception of tighter supply with anti-dumping duties now being applied on US and Egyptian imports and a better-balanced market confidence was high that buyers would accept higher prices that would enable them to recover margins eroded by the cost-of-living crisis in the past two years.
Their confidence came from signs that the macro-economic picture in Germany – the largest economy in Europe – was improving.
The Bundesbank pointed to economic shoots of recovery.
"The German economy is slowly regaining its footing after a roughly two-year period of weakness," bank President Joachim Nagel said June 7. "The German economy is extricating itself from the period of economic weakness."
The Bundesbank's Forecast for Germany said it expects German gross domestic product to grow again somewhat this year and then increase more strongly in the following years. Not only will private consumption gradually pick up again, but export business will also improve again from the second half of the year. Against this backdrop, industry will also grow more strongly again, according to the June Bundesbank statement.
In addition, a fear of limited PVC supplies, a low stock inventory base and the start of scheduled maintenances upstream, coupled with the mothballing of some production this year helped inform that view.
Producers pitched for the same high price hike and a hope-for-the-best strategy. But August is proving differently. Given the Eur20/mt rise in ethylene monomer costs, some nominated increases of as much as Eur50/mt with the hope that anything above Eur20/mt would be enough to expand margins.
But in a seasonally weak August market they were struggling amid a high fiscal policy environment and a shaky macroeconomic picture that made it difficult for consumers to invest in construction and forced some governments to control infrastructure financing.
