Northeast Asian ethylene dichloride (EDC) spot import prices will likely stop rising in the fourth quarter of 2023, as lower polyvinyl chloride (PVC) demand will likely continue offsetting reduced EDC and vinyl chloride monomer output as a result of negative chlorine netbacks.
Spot EDC import prices rose by $20/t in September to between $280-295/t cfr northeast Asia, with latest import bookings into southeast Asia and China bolstered by higher feedstock ethylene costs and rising Chinese EDC domestic prices. This allowed integrated EDC producers in northeast Asia to partially recover some of their chlorine netbacks into EDC, but current netbacks remain well within negative territory and Argus estimates these to have remained near or below $0/t since August 2022.
Since chlorine cannot be stored, chlor-alkali plants run in accordance to chlorine demand into chlor-vinyls (EDC, VCM, PVC) and other downstream derivatives, with negative chlorine netbacks and higher feedstock ethylene costs continuing to incentivise lower EDC production rates. Tighter EDC availability will likely support higher price offers during the fourth quarter, but these could remain challenging to achieve given weaker downstream vinyls demand and the arrival of previously booked, competitively priced EDC cargoes from the US.
Latest data from Global Trade Tracker (GTT) shows that northeast Asia — Japan, Taiwan, China and South Korea — imported around 19,000t of EDC from the US between July and August this year, compared with total bookings of 5,243t during the second quarter. Argus expects import arrivals into northeast Asia to have risen further in September, in line with more attractive EDC prices from the US during the second quarter and so far in the third quarter, after accounting for freight and delivery costs into northeast Asia.
PVC demand key to market recovery
Lower EDC operating rates so far in 2023 have broadly supported higher VCM import prices into northeast Asia. Rising coal prices for carbide-based VCM production and overall supply tightness owning to planned maintenance schedules across the region have further contributed to this rise in spot prices. Argus assessed VCM prices for September at $670-695/t cfr northeast Asia.
But these dynamics in upstream chlor-vinyls have failed to directly translate into suspension PVC (s-PVC) price increases, with key northeast Asian markets continuing to view buying interest as muted because of a weakening construction sector in China. Demand for s-PVC in southeast Asia has largely mirrored that of northeast Asia, while major exporters in these regions have mostly taken advantage of higher s-PVC import requirements from south Asia and the Middle East earlier in the third quarter as a means to destock inventories. But this exporting momentum began to slow in August, owing to more competitively priced s-PVC cargoes from the US emerging in both south Asia and the Middle East.
Given the currently fine balance across EDC and VCM production in northeast Asia, any potential upward shift in these prices, and therefore a recovery in chlorine netbacks into EDC, will likely remain justifiable following increasing PVC demand, with participants closely viewing the Chinese and Indian markets as the potential key drivers for this shift. Chinese domestic PVC requirements are likely to rise slightly in the coming weeks as converters begin to restock after the country's national day holiday, but a significant shift in demand is unlikely to take place until at least mid- to late 2024. There are similar expectations for demand recovery in India, although medium to longer-term demand could recover a lot quicker in the country following ongoing government incentives to boost construction and agricultural activity.
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