Plastics Additives & Compounding November/December 2008

28ISSN1464-391X/08 © 2008 Elsevier Ltd. All rights reserved.

Global PVC markets: threats and opportunities

At the ANTEC conference held in Milwaukee, USA earlier this year Brad Esckilsen, managing director of the Vinyl Divi-sion of Formosa Plastics Corporation, provided an overview of the global PVC market. Plastics Additives & Compounding reports on the current state of the market and some of the threats and opportunities on the horizon.

There are a number of confl icting pres-sures on the global PVC market. These range from increases in feedstock and logistical costs, as well as the general slow down in economic conditions, through to increased PVC production and demand in China and substitution of PVC by products such as biopolymers and PET.

World PVC production capacity will have more than doubled over the past couple of decades. In 1992 22 million metric tons of PVC were manufactured, but by 2012 this is predicted to rise to 50 million metric tons, according to petrochemical consultants CMAI. However, in 1992 Asia accounted for just 27 per cent of the

total, which reaches 50 per cent by 2012. This contrasts with falls in the share of North American production from 28 per cent to 19 per cent and in Western Europe of 26 per cent to 14 per cent. The leading fi ve global PVC manufacturers – Shin Etsu Group, Formosa Plastics Cor-poration, Solvay, Ineos and Oxy Vinyls

The construction industry is a major infl uence on the market for PVC. (Shutterstock)

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P V C m a r k e t s

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- account for around 29 per cent of the total production, with the fi gure for VCM production being nearly 28 per cent from the top fi ve – Formosa Plastics Corpora-tion, Oxy Vinyls, Dow, Solvay and Ineos. However, beyond the top fi ve production gets more diverse.World PVC demand in 2007 totalled 35.3 million metric tons, according to CMAI. The construction industry ac-counts for two-thirds of this demand, with 39 per cent destined for pipes and fi ttings, 18 per cent for profi les and tubes, and seven per cent for wire and cable. In the period 2007-2012, the average annual growth rate of PVC consumption is predicted to be 4.8 per cent. However, again this growth is slanted towards the emerging economies. Asia/Pacifi c is predicted to grow at 7.1 per cent and the Indian subcontinent at 11.5 per cent. On the other hand, growth in North America will be just 1.8 per cent and 0.7 per cent in Western Europe. Central Europe/CIS had seen a growth rate of 14.8 per cent in the period 2002-2007; however, this is

predicted to drop back to 8.8 per cent up to 2012.

Infl uencesFactors infl uencing PVC demand also have regional variances. Construction ac-counts for 70 per cent of PVC consump-tion in North America and the industry has seen a 30 per cent decline since 2006. However, offsetting this has been strong export demand from developing countries. The weakness of the US dollar has assisted in restoring North American competitiveness, except for production in the Middle East. Brad Esckilsen also asserted that rising costs in China have either signifi cantly reduced or eliminated China’s cost advantage compared to other regions of the world.India accounts for 88 per cent of PVC demand on the Indian subcontinent, which also includes Afghanistan, Paki-stan, Sri Lanka, Bangladesh and Nepal. The Indian government is implementing anti-dumping duties which are expected to increase the price of PVC. However, it is not expected to curb demand for PVC imports, which stands at 600,000 metric tons in 2008. The government has also taken steps to improve the country’s infrastructure, which should increase the demand for PVC.PVC demand in The Commonwealth of Independent States (CIS) is dominated by Russia, which accounts for 86 per cent. Russia used to be a net exporter of PVC,

Rigid PVC is widely used in infrastructure projects. (Shutterstock)

The construction industry accounts for two-thirds of PVC demand in North America. (Shutterstock)

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P V C m a r k e t s

but GDP growth is now expected to exceed fi ve per cent through to 2012.PVC imports are growing and reached 300,000 metric tons in 2008. No signifi -cant PVC capacity increases are planned until 2010.In the Middle East, Turkey, Saudi Arabia and Iran account for 86 per cent of PVC demand. Current capacity in the region only accommodates half of all PVC demand. PVC import levels are at around one million metric tons in 2008, driven by strong growth in construction. Sub-stantial capacity expansion is planned for 2010; however, this might be delayed due to rising capital costs and labour availabil-ity. Recent expansion in ethylene produc-tion is for other areas rather than PVC.In South America a turnaround in olefi ns in Brazil in 2008 has prompted two PVC producers to import supplies, primarily from the US. This is supporting export prices for PVC in 2008.The PVC market in Western Europe is very mature with little inherent growth in demand. The most recent demand growth is supporting increased invest-ments in Central Europe and the CIS. PVC imports are expected to remain at

around 300,000 metric tons per year in the short term.

ChinaThe rapid increase in demand in China for PVC is demonstrated clearly by the fi gures for PVC per capita consumption. In the US consumption per capita has remained around 20 kg since 2001 and is predicted to stay there up to 2011. Simi-larly actual and predicted consumption in Western Europe remains steady at 14-16 kg. However, in 2001 in China PVC per capita consumption was 4 kg, in 2006 it was 8 kg and in 2011 it is predicted to reach 11 kg. In the CIS in 2001 the fi gure was 1 kg, while this is predicted to increase to 6 kg in 2011.The Asia import/export balance for PVC is also changing. Since 2005 Asian exports of PVC have exceeded imports. As China supplies more of its PVC demand from domestic supply, then more is being exported, primarily to the Middle East, North Africa and South America.China is also different in the way that PVC is manufactured. In 2007, 78 per cent of PVC was made using the acety-

lene route from coal as a feedstock. This is an ineffi cient process and more highly polluting than using natural gas. China is also implementing further regulations to combat high pollution and air qual-ity and high energy consumption. This is expected to force consolidation and reduce investment in the carbide PVC process. The Chinese PVC industry is tied to crude oil and coal, while other regions have access to natural gas. It is believed that over the next decade natural gas should have a cost advantage over crude oil. In addition, Chinese labour costs are rising at about 10 per cent per year and will soon reach parity with Malay-sia and Thailand. China will then no longer be the country with Asia’s lowest labour costs. Some other factors driving Chinese production costs higher include the reduction of export Value Added Tax duty drawback, allowing the currency to fl oat, increased lending interest rates, and increasing coal and electricity prices.

Going forwardPVC will continue to maintain its prominent position in the plastics world because of its use as a good infrastructure building product. Higher PVC prices are likely to remain as a result of higher raw material and energy costs. The global PVC trade balance is changing as China is increasingly supplying its own domestic PVC demand. In addition, there is strong growth in developing markets that do not have suffi cient PVC capacity to meet their growing needs. These include India, Central Europe/CIS, Middle East, North Africa and South America. Predictions suggest that North American PVC pro-ducers will regain some of its advantaged cost position against other parts of the world, except for the Middle East.

ANTEC is organized by the Society of Plas-tics Engineers. Next year’s conference will be held alongside NPE in Chicago, USA from 22-24 June 2009.

Contacts:Chemical Market Associates Inc. (CMAI)Website: www.cmaiglobal.comFormosa Plastics CorporationWebsite: www.fpcusa.comSociety of Plastics EngineersWebsite: www.4spe.org

Wire and cable is another important market for PVC. (Shutterstock)

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