VAM Prices Plunge in North America Amidst Rising Inflationary Pressure
- 26-Sep-2023 2:53 PM
- Journalist: Francis Stokes
Vinyl Acetate Monomer (VAM) prices continue to plunge in North America, especially in US markets, due to increasing inflationary pressure as inflation rises from 3.2% to 3.7% in August 2023. At the same time, the Asian markets observed large restocking operations pushing up prices in China, India, etc. VAM is the feedstock for Polyvinyl Acetate and Polyvinyl Alcohols primarily used in the adhesives, paints, and coating industries. Suppliers trade large volumes for construction and automobile end-use.
In North American markets, the US is the largest supplier of VAM in the region. The US exports significant quantities to Europe, Brazil, Mexico, etc., affecting the regional prices. Thus, the US is a net exporter and a major global supplier. Prices of VAM in the US plunged by 32% on a MoM basis. Feedstock prices remained largely stable in the domestic market as the US is self-sufficient in Acetic Acid supply. Multiple vendor inquiries revealed that large volumes of inventory stocks are being destocked by the manufacturers of VAM primarily as the danger of falling demand looms over the economy. US Federal Reserve is expected to increase the key interest rate in the following months to control the inflationary trend and reduce the effect of imported inflation from the Middle East, Europe, and Asia. Furthermore, beginning in September, US Auto Union strikes created an oversupply of intermediary chemicals, including VAM, in the market, causing price adjustments and alternative supply chains to control the pricing. US exports significant VAM down South, including Brazil and Mexico. Large volumes are being traded in Mexico and Brazil as restocking operations across developing countries are observed.
In Brazilian and Mexican markets, vendor inquiries revealed that automobile and construction demand continues to boost the demand for VAM. Oversupply and readjusting prices in the domestic market are forcing the US manufacturers to destock VAM supplies in the export market, which Mexico and Brazil benefit from. Demand from the construction sector in Brazil continues to provide a positive impetus for VAM imports and the subsequent downstream derivatives. PMI construction in Brazil continues to stay positive, albeit slower, in August 2023. Forecasters observe that the trend is likely to change in the coming months. In Mexico, demand for VAM is largely through the automobile sector. As US auto union strikes proceed, oversupply and price decline are being benefitted by the automobile industries in Mexico. Inquiries with Mexican market players revealed that Multinational producers are shifting their newer orders to Mexican subsidiaries, thus diverting significant supply to Mexico to hedge against the continual auto union strikes. CFR Veracruz was reported to be around USD 1093/MT in the week ending on 22nd September 2023.
In Asian markets, we observe a rising trend primarily because China is aggressively procuring significant VAM from the domestic and external markets. Multiple inquiries revealed that China undertook significant inventory buildup capacity expansion due to weak economic growth. One set of market participants argued that rising prices of crude being anticipated as rising inflationary pressure across the globe, making prices of Acetic acid, VAM, and other petrochemicals rise significantly, and the hedging undertaken by aggressive procurement by Chinese suppliers is further raising the prices of VAM and Acetic acid for the coming business cycle. Another set of experts argue for the improving demand sentiments in China as the People's Bank of China undertaking key interest rate cuts providing relief for consumers and investors is generating bullish sentiment in the market. ChemAnalyst's internal studies found that the aggressive procurement of China is largely driven to hedge against the coming inflationary trends since Chinese exports continue to falter along with Japanese and South Korean economic performance.
ChemAnalyst's internal studies forecast that the decline in prices of VAM is expected to stabilize in the coming weeks once the inventories are restocked across the globe, and the global demand is expected to slow down due to rising inflationary trend as OPEC+ Russia continue to extend supply cut till November 2023. The US is expected to hedge against the rising inflated imports through shifting supply chains in the American regions, especially Canada, Mexico, and Brazil.