US VAM Prices Take a Nosedive in October 2023 Amidst Weaker Economic Performance
- 21-Nov-2023 12:25 PM
- Journalist: Gabreilla Figueroa
Vinyl Acetate Monomer (VAM) prices plunged after the US released the data for economic performance for the month of October 2023. With the release of US economic data, similar price movement was observed in the ethylene prices, which is an important feedstock for VAM. Prices declined to the tune of 2% on a Week-on-Week basis in the American markets as market players turned bearish, looking at the gloomy outlook for the coming quarter.
In the American markets, prices of ethylene spot basis declined by 5% in the given week, indicating that producers are bearish on American market demand sentiments. In September, demand sentiment remained strong, and the supply chain tightened on the expectation of stronger demand. It continuing to relax in the second week of November as data suggests weak economic recovery of the American economy is on the way. Retail sales fell in the American markets in October on a month-on-month basis on the back of inflated interest rates and rising inflationary pressure triggered by oil supply cuts. Prices of major feedstock like ethylene, VAM, and others significantly fell as the US increased supply of over 13.2 million bbl/day of oil in October, offsetting the decline in volumes reduced by Russia and Saudi Arabia. Ethylene inventory stocks improved higher than anticipated in October, reflecting lower downstream demand. Feedstock Acetic acid, to VAM, is slowly being destocked in the market on the impetus of weak demand sentiment in Winter. The previous week saw declining gas prices on account of the European destocking of Natural gas reserves as both Copernicus and NASA released the Winter outlook on Europe favoring warmer temperatures in the Northern regions. Market participants argue that declining prices of Ethylene and VAM allowed the producers downstream to reduce their prices as US demand sentiment turned weaker in October and is expected to carry down into Q4FY23.
The VAM market globally continues to remain oversupplied due to American destocking in Latin American countries, Chinese new capacity additions, and Middle Eastern dumping into the global market. According to the IMF, the Chinese economic outlook remained strong as demand seemed to return gradually. At the same time, we see a major sellout of VAM and ethylene in the spot markets, reflecting a ‘weaker’ recovery than anticipated. Multiple inquiries revealed that US Q2 economic indicators, especially in the construction market, pulled down VAM prices into a spiral as destocking began. US suppliers continue to dump VAM in Brazilian markets, an already oversupplied market, forcing their domestic companies to reduce their prices below sustainable levels as energy prices continue to stay elevated in Brazilian markets. Similar acts are being observed in the Asian markets. Singapore and China continue to dump large volumes of VAM into Southeast and East Asian markets. While Acetic acid prices in Asian markets are below pre-Covid level prices, experts argue that higher inventories previously still hold ground and are being destocked now into the markets, giving margins to the companies to reduce VAM prices further.
Prices are further expected to show declining movements with marginal improvements in demand offset by a huge stock of inventories as the festive season in the Western hemisphere approaches. Furthermore, ChemAnalyst’s internal studies reveal that overall demand sentiment is expected to remain weaker because of El Nino weather challenges in Asia and North American regions, pulling down VAM prices further until 2024.