SEASONAL PRICE HIKE TREND RETURNS TO PVC MARKET

SEASONAL PRICE HIKE TREND RETURNS TO PVC MARKET

Recent price hikes for polyvinyl chloride indicate that this sector of the plastics business could be returning to the kind of seasonal pattern of price swings that traditionally dominated it.

At least four major manufacturers have posted price increases for May 1, following a round of increases phased in over February and March.The new prevailing price of 38 cents a pound for large bulk shipments is well below historical highs for PVC.

Vista Chemical Co. of Houston was the first to raise prices, announcing an increase of 2 cents a pound April 1. BFGoodrich Co. followed suit, hiking its prices the same amount last week.

The Goodrich increase was quickly followed by Air Products and Chemicals Inc., based in Allentown, Pa., Shintech Inc. of Houston reportedly raised its prices 2 cents a pound on Tuesday.

PVC resin suppliers said the recent increases will be supported by the strong demand for their products since the beginning of the year, as companies throughout the supply chain rebuilt inventories that were unusually low at the end of 1989.

Unlike recent years, the expected year-end drawdown of inventories was unusually steep this year because PVC prices fell steadily during the fall.

Another factor in the drawdown was that most producers were shut down for up to a week in late December and early January when the Gulf Coast was hit by some of the coldest weather in decades. The freeze extended over most of the South, affecting producers outside the Gulf area as well.

An official for one PVC supplier said the steep fall in prices last fall, coupled with strong demand, has set the stage for what used to considered a normal year in the PVC business.

"From 1986 to 1989, we had a steady rise in prices," he said. "People would stock up" in anticipation of a continued rise, "and then work off the inventories. But it was all fairly steady."

Without that upward pressure on prices, there is less tendency to maintain inventories and "you don't get the leveling of those peaks" in prices, he said.

The recent change in the PVC market could signal a return to the kind of volatility that was common before 1986, when the market more closely followed seasonal changes in demand and inventories.

According to this pattern, inventories are quickly rebuilt for the spring in February and March, and prices remain strong as the construction industry starts building when the ground thaws. PVC demand tends to slow down in July, as demand from builders slows, and many producers choose to take their plants down for scheduled maintenance during this lull.

Doug Sherly, manager of sales and marketing for Air Products' plastic business, said that the large inventory swing certainly caused the price increases posted this spring, but he is not sure that the fundamental market has changed.

Air Products effectively raised its prices for May 1 by suspending a temporary voluntary allowance of 2 cents a pound imposed when it raised prices 3 cents a pound Feb. 1.