The margin weakness in PVC, as shown in Exhibit 1 from today's daily report, suggests that the market might be weakening, but higher prices would suggest that it is not. The integrated margin weakness is mostly the result of rising costs, and the US PVC market may be strong enough to allow producers to pass on these costs fully over time. We still see PVC as the least risky way to play the US polymers market as infrastructure and manufacturing investments should keep demand strong even if we see a decline in consumer durable related spending. The Westlake chart below highlights one of the primary drivers behind our mega-cycle view – no new capacity. The supply shortfalls that are implied in the chart will be mirrored in other basic chemicals in our view but PVC is likely the most acute example – creating what could be a prolonged period of strong margins for the industry.
Source: Westlake – Investor Presentation – 3/17/2022, April 2022
