US PVC prices grow, demand recovers in 2023

The US polyvinyl chloride (PVC) market may find price recovery in 2023 after months of declining monthly contract prices, even as inflation and rising interest rates pressure home construction.

PVC contract prices have fallen from 96.5¢/lb, at least a six-year high, to 70.5¢/lb over the last six months after the PVC market faced a souring housing market, weak global demand, and a significant oversupply in material. Despite the negative factors at play in the market currently, industry participants see several reasons why prices could swing upwards in the coming year.

The most central factor contributing to the current price drops is poor domestic demand. Aggressive interest rate hikes by the Federal Reserve to tamp down inflation near four-decade highs earlier this year have more than doubled 30-year mortgage rates in the past year, dampening housing demand and undermining builder confidence and new home construction.

But recent data has begun to show inflation finally beginning to cool. Reacting to this, the Fed on 14 December hiked its target lending rate by 50 basis points after four consecutive 75 basis point increases and signaled it was on track to end its hikes next year as it forecast the economy nearly stalling in 2023.

As a result of the higher lending rates, home prices have fallen for several months in a row from highs at the beginning of the year and many buyers expect further declines in the near term. Additionally, declines in PVC demand have been at least partially fueled by buyers holding out for better prices, which are beginning to become attractive again even as most buyers are still cautious.

Some PVC producers have viewed broad market demand as slightly suppressed due to these factors and expect ordering to pick up as buyer inventories have tightened significantly.

There are also expectations among some producers that as inflation stabilizes and US consumers adjust, the negative economic impact will be lessened. The home repair and remodeling sector has been hit especially hard in recent months as customers have pulled back on big ticket expenditures following multiple years of investment by average Americans.

But other PVC sectors not thoroughly tied to housing construction are performing better, like film or wire and cable. Others have pointed to sectors like conduit and pipe doing fairly well due to municipal and public infrastructure work, which will only grow with funding from the bipartisan infrastructure law for the next several years.

Another major driver of the recent price declines has been an oversupply within the US market. Fully integrated chlorovinyl producers have been running strong even in the face of falling PVC demand to take advantage of strong caustic soda prices.

But caustic prices are not expected to remain high indefinitely. Participants expect the price to soften in the next few months which will allow producers to reprioritize the PVC supply balance in the production chain.

The wide gap between export and domestic prices has also put downward pressure on US prices in 2022. Domestic prices were last assessed at roughly $1,550/t in November, while the export range is several hundred dollars below that.

But traders and exporters have said export prices could rebound in the new year. Demand in India and China has returned in recent weeks with US prices already competitive in both countries. The high energy and production costs in Europe will make cheaper, imported US PVC attractive.