Saturday, December 3, 2011

PTFE Pricing Again – is there another price hike in the offing?

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The adage “Only the paranoid survive” has held very true in the PTFE industry these past 20 odd months. You see, while it is difficult to imagine worst case scenarios and constantly plan along their likelihood, it is usually the only way to make sure that one is not blind-sided by bad news when it does arrive. And since bad news has been arriving thick and fast, being mentally and commercially prepared for the price hikes in PTFE resins are what have allowed many PTFE processors to survive this period of turbulence.

So we choose to re-look at pricing again because despite the fact that PTFE prices have been stable since July 2011, the last thing we can afford to do is assume all will be well from now on and be rudely shocked if and when another price hike does come around.

But rather than subject ourselves to speculation, we have been looking at trends, hearing out rumors and gleaning information from various sources to gauge what might actually be the future of PTFE pricing in the near term. As always, there are various factors at play, but together they do suggest that another price hike is unlikely and that there may even be some easing out of prices in the offing.

1. Rate contracts

Our sources in Europe tell us that there is an increasing push by PTFE resin suppliers to enter into rate contracts for the coming quarter. In an environment where the suppliers have enjoyed increasing prices month-on-month, rate contracts suggest that the scenario may be changing and that an easing out of prices is expected.

Furthermore, many companies are rejecting the rate contracts, since there is a general feeling that prices will reduce in the near term.

2. China and Russia back in the game

In an earlier article we mentioned how both Chinese and Russian resin suppliers were experiencing capacity constraints due to a number of reasons ranging from Fluorspar reallocation to maintenance shutdowns and internal restructuring of capacities.

Now our sources tell us that China and Russia are once again making supplies into Europe and that the pricing is highly competitive in comparison to other suppliers.

Even locally, the marketing push by Chinese companies to try and sell resins into India has accelerated. We receive more mails every day from China and have even been approached by some sourcing agents, asking if we would be interested in entering an agreement to buy resins.

It was always our belief that prices may never come down, since the value growth due to pricing has more than compensated the volume reduction. However, we also know that China has always preferred higher volumes rather than higher margins (a strange strategy, but one that has allowed them to aggressively expand and build scale). So it is unlikely that they will join the rest of the world’s resin suppliers in keeping prices stable and highly probable that they will induce a price war of some sort – forcing prices to reduce.

A quick look at the global price benchmarks we have obtained show that while the rest of the world (India, USA, Europe) had stabilized around a price of US$25-27 per Kg, this rate was sustainable only as long as China and Russia were not supplying globally.



3. Anti-dumping duty no longer effective

When the anti-dumping duty on Chinese and Russian resins was first imposed in India, it effectively increased PTFE resin prices by US$3.3 per Kg. Given the local price of PTFE resins was US$7-8 per Kg at the time, this acted as a serious deterrent for processors buying from China and Russia. At US$20-25 per Kg, the US$3.3 duty ceases to be effective, as the landed cost of the resin would still be below the local rates being availed in India.

It does remain to be seen whether local resin manufacturers are able to bring about a further increase in the duty amount, but even this will take time, so it is likely China and Russia will re-enter India and put pressure on prices.

4. Re-opening of Fluorspar mines

An obvious trend – looking at the past year, may be that China is only able to supply PTFE resins now because there would be an easing out of domestic demand for R22 in refrigeration. We had in an earlier article suggested that in the medium term, as winter approached, there would be an increase in R22 available for PTFE resins and this would ease out prices. However, there is no guarantee that the same pattern would not repeat next year – with supply constraints forcing prices up again.

In the mean time, there are reports that mines in Mexico and South Africa have been re-opened, although it would take at least another 12-18 months for them to be operational. This suggests that prices may again increase during summer 2012 – although if processors stock up on raw materials prior to this, it would not allow the prices to escalate in the same manner as they did in 2011.

Up until last week, the local buzz was that PTFE resin prices were being hiked by up to 30% in January 2012. This has coincided with other news that points to the contrary – rate contracts, China and Russia, capacity expansion. It could be that we have missed out some key information and as a result, our own analysis is wrong. It remains to be seen whether there will be a price hike, but for now we’re staying paranoid – because it seems the safer option currently.

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