tracking the impact of the...2020 •global pvc market saw strong demand growth through 2015 –2018...

Tracking the impact of the pandemic on global vinyl markets

Rob Searle, ICIS Analyst

ICIS Global Outlook Seminar - EPCA 2020 Virtual Conference

9 October 2020

The global PVC market leading up to the pandemic and the subsequent impact

Agenda

01

The recovery in the construction sector and other end-use markets

02

Global trade flows – what do the current circumstances mean for global producers?

03

29 October 2020 ICIS Global Petrochemicals Outlook Seminar - EPCA 2020

The pandemic’s impact on global PVC markets

Global vinyls market showed mixed signs heading into 2020

• Global PVC market saw strong demand growth through 2015 – 2018

• Demand growth slowed in 2019 due to:

o Global geo-political tensions

o Poor market sentiment

• Q4 2019 moving into 2020, the outlook for demand was uncertain


70

72

74

76

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82

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2014 2015 2016 2017 2018 2019

Op

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Rat

e (

%)

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Global PVC market 2014 - 2019

Demand Operating Rate

Source: ICIS Analytics

PVC prices begin to slide March 2020


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Regional spot PVC prices

PVC CFR Asia SE Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : USD/tonne PVC DEL US Assessment Spot Full Market Range Weekly (Mid) : USD/tonne

PVC FOB Asia NE Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : USD/tonne PVC FD EU Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : EUR/tonne

Source: ICIS

The impact of the pandemic on global PVC demand in 2020


-3.4%2020 forecast demand growth for PVC as a result of the pandemic

3.6%2020 forecast growth for global PVC demand pre-pandemic


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The Pandemic’s Impact on PVC Demand

Demand Demand (pre-pandemic)

Strong recovery in global demand forecast post-2020


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Global PVC Demand 2014 - 2020

Demand Operating Rate Operating Rate (pre-pandemic)


Regional comparison of demand growth 2019 - 2021

8ICIS Global Petrochemicals Outlook Seminar - EPCA 2020


Northeast Asia the only region forecast to see positive PVC demand growth in 2020

Recovery in Europeanand Asia Pacific construction activity in 2021 to drive PVC demand

9 October 2020

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Regional comparison of the pandemic’s impact on PVC demand

North America Europe Northeast Asia Asia and Pacific

The recovery in the construction sector in Q2 & Q3

Prices level out amid returning demand in Q2


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Regional Spot PVC prices

PVC CFR Asia SE Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : USD/tonne PVC DEL US Assessment Spot Full Market Range Weekly (Mid) : USD/tonne

PVC FOB Asia NE Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : USD/tonne PVC FD EU Assessment Spot 4-6 Weeks Full Market Range Weekly (Mid) : EUR/tonne

Source: ICIS

Q2 2020: the start of the construction recovery

11ICIS Global Petrochemicals Outlook Seminar - EPCA 2020

• Projects initially postponed due to lockdowns began to start up again in Q2

• 2020 construction output forecasts downgraded globally as a result of pandemic

o Essential work continued

• Recovery in activity has varied by region:

• Strong Chinese recovery in construction activity in April, driven by stimulus measures

• US housing starts registered an uptick in May & June following largest monthly decline in April

• Eurozone construction PMI improved from 15.1 in April to 48.3 in June

• Except for China and South Korea, all countries are forecast to have seen a contraction in construction activity in Q3


25%of all global projects put on hold in Q2 2020

11.7%China’s July 2020 year on year growth in real estate investment

9 October 2020

Global tightening of PVC markets has driven price rises in Q3

Global tight supply caused by:

o Mid-August maintenance carried out by Formosa Plastics Corp in Taiwan

o Formosa Plastics US declared force majeure on 14 August

o Hurricanes Marco and Laura impact on crude and petrochemical production in the US Gulf

o Major unplanned outages in European market at the end of August

o Braskem’s long-standing feedstock issues affecting PVC production


Source: ICIS

A look ahead to 2021: the recovery in downstream industries

What does 2021 hold for end-use industry recovery?

• Construction activity to see YOY cuts to output in H2 2020 worldwide (except China and South Korea)

o Healthy recovery expected in Europe & North America in 2021

o Stronger recovery in China and India forecast

• Agricultural industry to see mixed recovery globally

o Strong demand for pipe in India pre-monsoon season

o Record rainfall this year to boost activity post-monsoon season

o China and India to see strong growth in 2021

• Automotive the worst-hit sector due to lockdowns; outlook for recovery in 2021 is weak globally

o Chinese auto sales rebounded quickly in April and May as consumers took advantage of reduced prices and government subsidies for NEV’s


Key uncertainties & risks to recovery


Degree of government

stimulus

Geo-political relations

Second wave of infections and

further lockdowns

Labour mobility issues

Supply chain disruptions

Trade flows – what do current circumstances mean for global producers?

The pandemic severely stretched the economics of Chinese carbide-producers


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PVC Regional Variable Margins - Suspension Ex Ethylene and Coal Suspension

NEA NW Europe SE Asia US Gulf Inland China - Coal

• As demand for PVC and ethylene fell, carbide-based producers felt the biggest pinch economically

• A low ethylene price scenario going forward could continue this trend:

• Lower crude prices

• High availability of ethylene globally due to capacity additions in the US, South Korea and China

• Major new export terminals in the US supplying deep-sea cargoes


How do the variable costs of carbide- and ethylene-based producers compare?


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Variable costs (Feedstock + Utilities - Co-product credits)

NEA Ethylene-based Variable costs Inland-China Coal-based Variable costs


How do European producers fit into this picture?


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Variable costs (Feedstock + Utilities - Co-product credits)

NEA Ethylene-based Variable costs Inland-China Coal-based Variable costs EU Ethylene-based Variable costs


The evolving import structure of the Indian market


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Indian PVC Imports 2014 - 2020

ROW China NEA ex China EU


In summary

• Global demand for PVC is forecast to fall in 2020 as a result of the pandemic

o Northeast Asia is the sole region expected to see positive demand growth this year

• Demand in 2021 is forecast to rebound strongly driven by the construction industry

• Following major low points in activity and demand in April, the construction sector saw improved activity globally in Q2 as countries reopened

o Except for China and South Korea, the majority of countries are expected to have seen construction activity slow in Q3 2020

• The current scenario of low ethylene and PVC prices could offer opportunities to global ethylene-based PVC producers in rapidly growing import markets such as India


Thank you

Rob Searle, Analyst

[email protected]

tracking the impact of the...2020 •global pvc market saw strong demand growth through 2015 –2018...

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