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Chlor-Alkali & Derivatives Markets
Charles Fryer
PVC Committee Meeting at APIC 2013
Taipei, 10 May 2013
Source: Tecnon OrbiChem
APIC 2013
US GULF CAUSTIC SODA & CHLORINE PRICES
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$/Metric Ton
ChlorineDomestic
ChlorineDomestic
Caustic SodaEx Works
Caustic SodaEx Works
$/Metric Ton
Source: Tecnon OrbiChem
APIC 2013
US GULF CAUSTIC SODA & CHLORINE PRICES
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ChlorineDomestic
ChlorineDomestic
Caustic SodaEx Works
Caustic SodaEx Works
ECU value
ECU value
$/Metric Ton
Source: Tecnon OrbiChem
APIC 2013
COST of ECU on the US GULF
0
50
100
150
200
250
300
350
400
450
500
550
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ECU Production Cost
Energy Costof ECU
(27mmBtu plus $30)
0
10
20
30
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$/mmBtu
Source: Tecnon OrbiChem
APIC 2013
NATURAL GAS, CRUDE OIL & COAL PRICES
US Nat Gas $/mmBtu
Oil $/mmBtuequivalent
Coal $/mmBtuequivalent
WE Nat Gas $/mmBtuequivalent
APIC 2013
EFFECT OF ENERGY COST ON CASH COST OF PRODUCTION OF THE ECU (Metric)
$/ECU
Source: Tecnon OrbiChem
Diaphragm
Mercury
Membrane
Cell Type
0
100
200
300
400
500
600
700
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Energy Cost $/mmBtu
Includes evaporation of lye to 50%
Natural Gasat Source
Coal in China
Fuel oilbasis
Middle East
USA
Europe
Asia
2004 2005 2006 2007 2008 2009 2010 2011 20120
400
800
1,200
1,600
2,000
2,400
2,800
3,200
Source: Tecnon OrbiChem
APIC 2013
US PVC EXPORTS
1,000 Metric Tons
$/Metric Ton
Source: Tecnon OrbiChem
APIC 2013
US GULF EXPORT CAUSTIC SODA& CHLORINE PRICES
-400-300-200-100
0100200300400500600700800900
1,0001,1001,200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Caustic Soda FOB Gulf CoastChlorine value into Exported EDC1.38 x [EDC - (0.285 x Ethylene) -20]
Caustic Soda
APIC 2013
CYCLES IN CHLOR-ALKALI BUSINESS
Chlorine Price
Low High
1
3
4
5
= 5-6 month trend
Price Trend
1 Chlorine up, Caustic down
2 Chlorine peak, Caustic up
3 Chlorine down, Caustic up
4 Chlorine down, Caustic peak
5 Chlorine trough, Caustic down
Caustic Soda Price
2
Higher
Lower
PlantUtilisation
Low
High
Source: Tecnon OrbiChem
$/Metric Ton
Source: Tecnon OrbiChem
APIC 2013
ASIAN CAUSTIC SODA & CHLORINE PRICES
5
-200
-100
0
100
200
300
400
500
600
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
4
1 Chlorine up, Caustic down
2 Chlorine peak, Caustic up
3 Chlorine down, Caustic up
4 Chlorine down, Caustic peak
5 Chlorine trough, Caustic down
Caustic Soda Liquid Spot Export FOB Northeast Asia
Chlorine value into Imported EDC 1.38 x [EDC - (0.285 x Ethylene) -20]
5 1 23
4 1 2 3 4 5 1
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
2006 2007 2008 2009 2010 2011 2012 2013
Source: Tecnon OrbiChem
ChlorineLiquid
ChlorineLiquid
Caustic SodaLiquid Market
membrane
Caustic SodaLiquid Market
membrane
APIC 2013
CHINESE CAUSTIC SODA & CHLORINE PRICES
Rmb/Metric Ton (inc. VAT)
0
100
200
300
400
500
600
700
800
2006 2007 2008 2009 2010 2011 2012 2013
$/Metric Ton/ECU
Source: Tecnon OrbiChem
ECU Value Cl + 1.10 NaOH
Caustic SodaLiquid Market
membrane
Chlorine Liquid
All inc VAT
APIC 2013
CHINESE VALUE OF ECU
Source: Tecnon OrbiChem
VCMFurnace
VCMFurnace
EDCDirect
EDCDirect
EDC Oxy
EDC Oxy
Air
HClEthylene
ChlorineVCM
VCM
WaterCalcium Carbide
ChlorineHydrogen
HClAcetyleneChlorine
Burner
ChlorineBurner
VCM Reactor
VCM Reactor
ReactorReactorPVC
PVC
APIC 2013
PRODUCTION ROUTES TO PVC
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rmb/Ton (inc VAT)
Calcium Carbide
HCl (100%)
Liquid Chlorine
Source: Tecnon OrbiChem
APIC 2013
EAST CHINA RAW MATERIAL PRICES
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rmb (inc VAT)
Calcium CarbideRmb/Ton
CoalRmb/2.5 Tons
Source: Tecnon OrbiChem
APIC 2013
EAST CHINA COAL vs CALCIUM CARBIDE PRICES
0
200
400
600
800
1,000
1,200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$/Metric Ton
Source: Tecnon OrbiChem
EthyleneBased
AcetyleneBased
APIC 2013
PVC CASH COST COMPARISON IN CHINA
East China Rmb price less VAT converted to US$
APIC 2013
EAST CHINA PVC PRODUCTION COSTS(March 2013)
$/Ton (excl VAT)
Source: Tecnon OrbiChem
0
200
400
600
800
1,000
1,200
Ethylene + Chlorine Calcium Carbide + HCl
Other costs
Chlorine (0.62) +
Hydrogen
CaC2 cost(1.45)
Price in E China ex works
Othercosts
Ethylene
(0.47)
Chlorine
(0.59)
Export Sales
Northeast Asia cfr International Supplies
APIC 2013
USA & CHINA CASH PVC PRODUCTION COSTS(March 2013)
$/Ton ( for China excl VAT)
Source: Tecnon OrbiChem
0
200
400
600
800
1,000
1,200
USA Ethylene at cashcost ex Ethane;Chlorine at spot
price
USA Ethylene contractprice + Chlorine
spot price
CHINA Ethylene +Chlorine
CHINA Calcium Carbide
+ HCl
Other costs
Chlorine (0.62) +
Hydrogen
CaC2 cost(1.45)
Price in E China ex works
Othercosts
Ethylene
(0.47)
Chlorine
(0.59)
Export Sales fob
Northeast Asia cfr International Supplies
Source: Tecnon OrbiChem
APIC 2013
PVC PRODUCTION COSTS vs CRUDE OIL PRICE
$/Ton
0
500
1,000
1,500
0 25 50 75 100 125 150
Production cost of PVC-A (from calcium carbide) in E China (excl VAT), Mar 2013
International PVC cash cost from ethylene ex naphtha cracker plus chlorine at ECU cost ÷÷÷÷ 2.1
China can export PVC-A
Brent Crude Oil Price $/bbl
International PriceNE Asia - March 2013
$/Ton
Source: Tecnon OrbiChem
APIC 2013
CHINA PVC-A PRODUCTION GROSS MARGIN
-200
0
200
400
600
800
1,000
1,200
2005 2006 2007 2008 2009 2010 2011 2012 2013
Acetylene Based(Price ex. VAT)
Acetylene Based (Cash Cost)
Difference between Acetylene Based
Price (ex VAT) and Acetylene Based
Cash Cost
$/Ton
Source: Tecnon OrbiChem
APIC 2013
CHINA PVC-E PRODUCTION GROSS MARGIN
-200
0
200
400
600
800
1,000
1,200
2005 2006 2007 2008 2009 2010 2011 2012 2013
Ethylene Based PVC Cash Cost
Ethylene BasedPVC Price(excl. VAT)
Difference between Ethylene Based
Price (ex VAT) and Ethylene Based
Cash Cost
0
20
40
60
80
100
120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
20
40
60
80
100
120
140
160
180
200
1,000 Metric Tons
APIC 2013
CHINA PVC EXPORTS vs CRUDE OIL PRICE
$/bbl
PVC Exports
BrentCrude Oil
Source: Tecnon OrbiChem
Brent Crude Oil Price $/bbl
APIC 2013
CRUDE OIL PRICE, ECU COST, CFBT, CHLORINE PRICE & CAUSTIC SODA PRICE RELATIONSHIP
Source: Tecnon OrbiChem
0
100
200
300
400
500
600
700
800
900
0 50 100 150
ECU $ Cost and Cash Flow
0
100
200
300
400
500
600
700
800
900
0 100 200 300 400 500 600 700 800
Caustic Soda Price $/ton
25%
20%
15%
10%
5%
0%
CFBT%
Chlorine Price per ton
$400
$300
$200
$100 $0
US DomesticMar 2013
0
100
200
300
400
500
600
700
800
900
0 50 100 150
APIC 2013
‘SHOULD WE SELL LOW-PRICED EDC TO MAKE ADDITIONAL CAUSTIC SODA AVAILABLE FOR SALE?’
Source: Tecnon OrbiChem
Brent Crude Oil Price $/bbl
ECU $ Cost and Cash Flow
0
100
200
300
400
500
600
700
800
900
0 100 200 300 400 500 600 700 800
Caustic Soda Price $/ton
25%
20%
15%
10%
5%
0%
CFBT%
Chlorine Price per ton
$400
$300
$200
$100 $0
US ExportMar 2013
-$10
0
?!
ECU
APIC 2013
CONCLUSIONS
• The slump in building construction in the USA and Europe and the 2012 slowdown in the Chinese economy led to weakened prices for vinyl chain products, worldwide, weak chlorine values and therefore high caustic soda prices BUT …o Building construction is recovering in the USAo Asian caustic prices are now in decline, so …o Chlorine values are likely to recover, then strengthening PVC prices
• Low-cost gas from shale has greatly strengthened the US competitive position for chemicals, particularly for vinyl productso US ethylene production costs from ethane are far lower than from naphtha-
based crackers widely used in Asia and Europeo US electrical power costs and hence the cost of the ECU are lower than for
most other chlor-alkali producerso Hence US producers of EDC, VCM and PVC have a huge competitive
advantageo US advantages will last for many years
Source: Tecnon OrbiChem
APIC 2013
CONCLUSIONS continued
• The traditional chlor-alkali cycle seems to have entered a caustic-weakening and chlorine-strengthening phase, at least in Asia. If there is economic improvement in 2013 we can expect that worldwide:
o Operating rates and chlorine values will rise
o Caustic soda prices will decline
• Chinese PVC, largely acetylene-based, had lost competitiveness in 2011-2012 based on high coal costs, but a decline in coal prices over the past 12 months is leading to better margins and rising export flows.
Source: Tecnon OrbiChem
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