Business

Sagging use, overcapacity worry PVC makers Production of resin dropped

11.6%, sales and captive use

11.9% in 1980; with big new

capacity in cards, shakeout

of producers seems inevitable

Polyvinyl chloride is in trouble and that trouble may continue for some time. Lackluster markets, especially in construction, plus an aggressive plant-building campaign in the in­dustry, and the sheer number of pro­ducers have served to ensure that PVC finished 1980 in terrible shape.

According to figures compiled by Ernst & Whinney for the Society of the Plastics Industry, production of PVC in 1980was 5.5 billion lb, 11.6% less than production in 1979. Sales and captive use of the resin fell an even greater 11.9% to 5.4 billion lb.

Last year was the worst year for PVC since 1975 when production fell more than 25%. And the decrease in production last year dropped PVC's historic growth rate to 5.8% annually between 1970 and 1980 from an av­erage annual rate of 7.3% between 1969 and 1979.

A good way to look at the situation is to see what the downturn in the construction business did to one company that is highly dependent on fabricated PVC sales and is thus a big customer for the PVC resin pro­ducers.

At Johns-Manville last year, total sales were almost flat. But revenue from the company's pipe products and systems division, which is largely PVC pipe, fell 28% to $220 million from the year before. Income from these operations really went sour during the year, and the division suffered a loss in operating income of $4.8 million after a gain of $18.0 mil­lion in 1979. The pipe operations, plus other construction-oriented divisions, were responsible for Johns-Manville's 21% drop in operating income last year.

With results like these, a shakeout seems likely in the PVC business. The industry is crowded with resin pro­ducers, industry sources say that they

do not expect resin production to get back to 1979 levels until at least 1982, and there is a big hunk of new capac­ity coming on stream in the next three years. One company—Firestone— already has gotten out of the PVC business, and others, including Air Products and Diamond Shamrock, are exploring the exit.

There are 19 PVC resin producers in the U.S. and 38 plants with a 1980 combined capacity of about 7.4 billion lb, according to SRI International. Thus, last year, the industry was op­erating at about 73% of capacity, or nearly 2 billion lb under nameplate. This operating rate was helped slightly by exports of PVC, which increased 44% in 1980 over 1979, but producers are quick to admit that the main reason exports rose was that plenty of product was available.

The result of the excess capacity was that the list price of PVC fell to 31 cents per lb from 35 cents during the year, and, although they will not admit it outright, producers indicate that the resin probably is discounted further from that.

However, the situation could get much worse before it gets better. In­dustry sources say that production growth will not get back to historic levels of 7% until next year. This would mean that by 1983, resin pro­duction in the U.S. still probably would be less than 7 billion lb, and still below present capacity. And by

then, a spate of new capacity will have come on stream.

There is presently, barring any slippage, about 1 billion lb of new capacity scheduled for this year, an­other 500 million or more in 1982, and a giant surge of 1.4 billion lb in 1983, including B. F. Goodrich's huge 1.1 billion lb-per-year plant being built at Convent, La.

Thus, by 1983, if everything goes as planned, industry capacity will be about 10.5 billion lb per year, whereas production still will be struggling to exceed 7 billion lb. This would drop capacity utilization to about 65%, and the question then arises about just how long an industry can go on like that.

The answer may be that it will not have to wage this campaign very long, as older and less efficient plants close. In the U.S., more than 43% of PVC production capacity is in plants that have less than a 200 million lb-per-year potential. And eight of the 19 producers have total annual capacity of less than 200 million lb.

Thus, these smaller companies and the smaller plants become prime candidates for closure as new capacity comes on stream. Further, although new construction probably is on schedule, all the new capacity may not be started up once it is built. For instance, in a planned two-unit plant, only one unit may be started imme­diately, with the other deferred until market conditions improve.

Industry sources are reluctant to say just how much capacity may be shut down, although most agree that some will have to go in the next few years and, in fact, some may be closed as early as late 1981, especially if there is another dip to the recession or even if there is just slow growth this year.

Even if producers were able to hold on, the new Goodrich plant in 1983 probably would put the final nail in the coffin for many of them. Goodrich told C&EN last summer that through economies of scale (the capacity of the plant will be 20% larger than the total capacity of the second largest PVC producer today, according to Good­rich) and new process technology, the Convent plant will be the lowest-cost U.S. producer.

In addition to these two reasons,

10 C&EN March 16, 1981

PVC capacity may far outstrip output by 1983 Billions of lb

Capacity

Production

Sources: SRI International, Society of the Plastics Industry, C&EN estimates

the company will have a ready source of much of the chlorine that it needs for the plant at its joint venture chlorine-caustic soda plant being built with Bechtel, also at Convent.

The giant Goodrich plant may in­deed be a precursor of things to come in the PVC industry. It may well be that there will be no, or at best few, more plants built with less than a billion pounds of capacity. Where companies are increasing capacity at present, they generally are not building new plants, but increasing capacity at existing facilities. These probably will operate at lower cost than the older, smaller plants, if for no other reason than lower transpor­tation and distribution costs. How­ever, the real economies will come with the big plants, where economies of scale figure in. Goodrich, for in­stance, has been able to increase re­actor size substantially at its Convent plant. Although they create some technological problems, in general the larger reactors are cheaper to build and to operate than a number of re­actors whose combined size equals the capacity of a large one.

The shakeout in PVC may come, however, just in time for some rather good times for resin producers. Whereas producers say that growth probably will be in the 7%-per-year range in the early 1980's, slowing to 6% per year in the second half of the decade, some interesting possibilities are opening for PVC.

One is that chlorine is in such bad shape economically that PVC may have little or no trouble becoming the low-cost plastic of the 1980's. Because of the large use of low-cost chlo­rine—chlorine makes up one half of the PVC molecule—in the resin, PVC is not so sensitive to oil price rises as are other resins. Therefore, as oil prices, and thus the cost of other plastics, increase, PVC producers will not have to raise prices so fast to re­cover costs, providing chlorine tabs remain low as they are expected to do.

Further, PVC is gaining new ap­plications in that old area of con­struction where it continues to eat up acrylonitrile-styrene-butadiene's share in the pipe market and is gain­ing on aluminum for home siding. It also is gaining in appliances, where ABS and other resins have long held sway.

Thus, if the producers are right, the next three years are going to spell turmoil for the PVC industry, but once the industry settles down, it may be in for some relatively good times.

William Storck, New York

CHECKOFF NEW PLANTS

• Calcium chloride. Texas United Chemical expects to complete in March 1981 plant at Lake Charles, La., with capacity of 35,000 tons (dry basis) per year of 38% liquid material for use in fluids to drill for oil.

• Catalysts. Armak Catalysts division of Armak plans second unit adjacent to existing unit in its Bayport, Tex., plant with ca­pacity of 6000 tons per year of hydrotreating catalysts. When completed in late 1982, addi­tional unit would bring capacity to 10,000 tons per year.

• Chlorofluorocarbon. Penn-walt will build plant at Calvert City, Ky., to cost more than $30 million to make chlorodifluo-roethane for use in company's proprietary Kynar polymers, a polyvinylidene fluoride. Capacity hasn't been disclosed; completion of plant will take two years.

• Oxygen. Airco Energy Co. will build and operate $35 million, 1000 ton-per-day oxygen facility at site of Cool Water Coal Gas­ification Program near Daggett, Calif. Construction will begin this summer and be completed late in 1983.

• Thermoplastics. Mobil Chemical plans several additions to its plants to make these poly­mers. At Beaumont, Tex., com­pany will expand incrementally low-density polyethylene unit and add new linear low-density polyethylene unit using technol­ogy licensed from Union Carbide. When this work is completed in late 1983, capacity at site will be about 800 million lb per year.

Mobil Chemical also will expand capacity about 25% to make ori­ented polypropylene at plants in Stratford, Conn., and Shawnee, Oklà., to bring capacity to more than 125 million lb per year by 1982.

At Joliet, 111., Mobil will increase capacity to make polystyrene by adding unit to make 160 million lb per year of crystal polystyrene

and unit to make 100 million lb per year of high-impact polysty­rene. When this expansion is completed in early 1983, capacity a:t site will total 465 million lb.

PLANTS COMPLETED

• Electronic chemicals. Allied Chemical has expanded its Pittsburg, Calif., plant to increase capacities to make its line of re­agent and electronic grade min­eral acids, acetic acid, and am­monium hydroxide. Additional expansion continues.

• Ethanolamines. Texaco Chemical has started up expan­sion of its unit at Port Neches, Tex., which increases capacity 60% to 240 million lb per year of these materials used in deter­gents, natural gas treating, and many other products.

• Iron oxide. Mobay Chemical started up second and last phase of expansion of 90 million lb-per-year unit in New Martins­ville, W.Va., which cost more than $50 million to make this pigment available in selected colors.

• Isocyanates. Rubicon Chem­icals is supplying diphenyl methane diisocyanate (MDI) and MDI variants from new 25 mil­lion lb-per-yeâr pure MDI unit at Geismar, La. Unit is part of ex­pansion program to bring capac­ity to 250 million lb per year.

• Phosphorus pentasulfide. FMC's plant in Lawrence, Kan., to make this intermediate with capacity of 40 million lb per year in various grades has been com­pleted by Catalytic Inc.

• Polypropylene. USS Nova-mont has begun operations of second unit at LaPorte, Téx., to make this thermoplastic resin, nearly doubling capacity at this location to about 350 million lb per year.

• Specialty resins. Ciba-Geigy has increased capacity an undis­closed amount at its plant in Toms River, N.J., to make its proprietary line of epoxy cresol Novolac resins used in coatings and other applications.

March 16, 1981 C&EN 11