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US-based PVC and polyethylene producer Westlake has seen a moderate uptick in demand for those products in early 2023, prompting cautious optimism as inflation rates and continued geopolitical pressures weigh on consumer spending, CEO Albert Chao said Feb. 21.
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“Looking ahead, while uncertainties remain in the macroeconomic outlook, we believe some positive trends are appearing,” Chao said during the company’s fourth-quarter 2022 earnings call.
US feedstock and energy costs have declined, he said, and while energy costs in Europe have declined from record highs, they remain elevated.
While US housing starts fell 22% in 2022 compared to 2021, prompting a decline in demand for construction staple PVC, Chao said Westlake will benefit from the “eventual recovery” when US home construction rebounds in the coming months and years.
PVC is used to make pipes, window frames, vinyl siding and other products. Meanwhile, polyethylene demand has been more resilient, as it is used to make single-use, rather than durable, plastics.
Roger Kearns, Westlake’s chief operating officer, noted that Westlake shifted to more export resin sales in the second half of 2022 in response to softer domestic demand. However, domestic demand so far in early 2023 has shown signs of a slow rebound, so the balance of domestic and export sales could return to what Kearns considers normal in the coming months, he said.
Platts last assessed export PVC at $835/mt FAS Houston Feb. 15, up 27% from early December, according to data from S&P Global Commodity Insights.
US export low-density PE prices were last assessed at $1,124/mt FAS Houston Feb. 17, up 10.8% since late January, while US export linear low-density PE prices were last assessed at $992/mt FAS on the same day, up 4.6% since late January.
While US export PVC prices have inched up in recent weeks, they stood 52% lower than the $1,745/mt FAS price seen in late May 2022, S&P Global data showed. Rising interest rates and high inflation siphoned PVC demand through the second half of 2022 as US housing construction demand softened.
US housing starts in January reached 1.309 million units, down 4.5% from 1.371 million units in December and 21.4% lower than 1.666 million units in January 2022, according to US Census Bureau data. Privately owned housing units authorized by building permits in January reached 1.339 million, slightly above 1.337 million in December, but 27.3% lower than 1.841 million in January 2022.
The US Mortgage Bankers Association also reported in February that while mortgage applications in January decreased 3.5% on the year, they rose 42% from December.
Westlake CFO Steve Bender said that the increase from December indicates consumers were becoming more confident that rate increases were slowing.
Rising PVC demand pressures caustic soda prices
Executives also said the uptick in PVC demand would prompt higher production rates, which were pressuring upstream caustic soda prices as supply increased.
Caustic soda, a key feedstock for alumina and pulp and paper industries, is a byproduct of the production of chlorine, which is the first link in the PVC production chain. Increasing PVC output to meet growing demand will prompt higher upstream chlor-alkali rates.
Chao said average caustic soda prices in 2023 were flat to 2022 levels, although a rebound in domestic demand in China could give caustic soda prices a boost. China relaxed its coronavirus-related restrictions in late 2022, and higher domestic demand for caustic soda, PVC and other products in 2023 would reduce Chinese exports, Westlake executives said.
“Caustic really follows GDP,” Chao said. “If China comes back, and India is still one of the strongest emerging markets, we expect caustic soda to improve.”
Platts last assessed US export caustic soda prices at $650/mt FOB USG Feb. 14, down 38% from mid-November, S&P Global data showed.
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