Tuesday, February 5, 2013

Mapping the PTFE Price Increase - An Update

 We have been receiving many mails asking us to map or at least project the PTFE price trend going forward. Since our last post on PTFE pricing was about a year ago (Feb 2012), it is a valid question to ask whether there has been any further volatility in this market and what that implies for prices as a whole.

To lay any suspense to rest right away – we can firmly say that prices have indeed been stable this past year and it is due to this stability that our own interest in analyzing the prices has dimmed somewhat. However, that is not to say that things would continue along this vein indefinitely. PTFE is a complex material and the dynamics involving its manufacture and sale are constantly in flux – meaning that the next shock may just be around the corner at any time. So we would like to look at some of the buzz surrounding the industry in a hope to at least demystify the future to some extent.

Prices are expected to remain stable throughout 2013

This is the general consensus as of now and is due to two primary factors:
  1. There is a general slowdown in global demand (much in line with most other industries) that makes it risky for resin manufactures to experiment with pricing like was done early in the price escalation of 2010-11
  2. There was a significant over supply of resins when prices were high and this led to huge inventories which manufacturers are still offloading

In some areas it is believed that there is still some scope for prices to fall further. However, it is most widely accepted that the current rates are stable and should be for the foreseeable future

China still a key player – but not the only price maker

Back in 2010, it was largely a price war between manufacturers that led to very low PTFE prices. Much of this was driven by China – where the abundance of fluorspar and the support from their government allowed Chinese PTFE manufacturers to scale up very quickly.

Although China remains a key player still, a few factors are affecting their economics and scale right now:
  1. The government support has reduced for PTFE resin manufacturers in China. With the clamping down of R22 within China (for environmental reasons), there is a subsidy of US$0.5 per Kg of R22, which is no longer being offered by the Chinese government.  Owing to this, Chinese manufacturers have had to pass on this cost increase of about US$2 per Kg on to PTFE processors.
  2. Due to quality issues with Chinese resins, many OEMs have started specifying that their parts be made from resins such as DuPont, Daikin or AGC. Many semi-finished PTFE processors have also shifted away from Chinese resins due to the instability of the material. It was long believed that China reserved the good quality resin for their domestic manufacture and preferred to dump the off spec grades into other countries (one of the reasons why the anti-dumping duty on Chinese resins was upheld by the Indian government). This has hit the volumes of Chinese resin manufacturers
  3. Another key issue is repro material. While India earlier had significant imports of Chinese semi-finished PTFE materials, most of this was repro material but was being passed off as 100% pure virgin PTFE in the local market. This high intake of semi-finished PTFE was affecting the local semi-finished manufacturers as well as local resin suppliers. However – owing to the major quality issues with repro and the lack of accountability and transparency in the percentage of repro being incorporated, many companies have had to stop procuring semi-finished PTFE from China and have started buying domestically – where it is easier to monitor quality and also return material if found defective. This has led to a resurgence in domestic PTFE semi-finished goods production and also an increased off-take from local resin manufacturers.

With China on the back foot due to the reasons listed above, it may be safe to say that price manipulation and/or competition is for the time being not a threat – since it is usually with China that most of these issue do arise. Hence, the current view is that of stability – and we should enjoy that while it lasts.