Recent moves by the US to block the Strait of Hormuz have pushed international oil prices up, with WTI crude reaching $79 a barrel. This rise is now starting to push up the prices of other related chemical products, like naphtha and ethylene.
This week, ethylene prices in Northeast Asia rose by about $20, trading at around $855/MT. Because of this, Polyethylene (PE) prices also went up by about 4.5% compared to last week. At the same time, PVC makers in major Asian countries are getting ready to raise their prices, making the market quite tense.
Why Asian PVC Prices Won’t Skyrocket
Even if oil prices stay high, PVC prices in Asia are not likely to go up much further. Here is why:
- More Supply from China: During the Middle East tensions between March and June, China successfully increased its own coal-based production of ethylene and PVC. This extra supply helped stabilize the Asian market and weakened the direct link between oil prices and chemical prices.
- Slow Season & Cautious Buyers: July and August are typically slow months for the market due to the rainy season. On top of that, with central banks around the world tightening money policies, traders are playing it safe and only buying what they immediately need.
- Cheap US Ethane Feedstock: China has been steadily buying more and more shale-gas-based ethane from the US. The price of US ethane does not really follow the ups and downs of international oil prices, and its supply is highly stable. This steady flow of cheap raw material has greatly helped China stabilize its production of both olefins and ethylene-based PVC, ensuring a steady market supply.
Outlook for the Rest of the Summer
If the military tension between the US and Iran continues through late July, traders will probably start buying more to stock up for August shipments in order to prepare demand-peak in September. This might cause prices to go up slightly, but we will not see the dramatic, sudden price jumps we saw earlier this spring.