- Re-entering of China and Russia into European and Indian markets at competitive rates
- Easing out of Fluorspar supplies due to opening of new mines and reduction in China’s domestic consumption
- China’s summer approaches.
In our very first article on pricing, we specifically highlighted the impact that the Chinese summer was having on PTFE prices. Summer months spike domestic demand for refrigerators and air conditioning and consequently cause R22 to be diverted from PTFE and into these products. This creates the shortage in R22 and was one of the root causes for the price escalations seen last year. However, we also postulated that once summer passes, the prices would ease out – which they have. But what now? Summer is about 2 months away and there is nothing to suggest that the rest of the world’s fluorspar mines can support the industry as yet. Our own sources indicated that it would be at least 2 years before the re-opening of mines in Mexico and South America eased the supply side constraints on fluorspar.
- The PTFE industry is far from efficient
In finance, we always assume that if an event (like China’s summer) is imminent and the effects of that event are known – then the prices of goods linked to the event should already reflect this information. In other words, if processors were aware that prices are going to spike during the Chinese summer, they would already have stockpiled raw materials to avoid against it, implying that there would be less demand during the summer and prices would not escalate again. However, this is unlikely to have happened since, (1) there are mixed opinions on whether the prices will go up or keep going down and (2) processors have already had to triple their working capital in order to keep up with the price increase in raw materials and it is unlikely that too many would have funds to stockpile materials for a full quarter. Therefore we remain nearly as exposed as we were last year.