HOUSTON — PVC makers should be able to find their way out of the darkness in the next couple of years, thanks to low global inventories and a recovery in demand growth.
North American PVC producers were hammered in the second half of 2000 as demand plummeted and have faced tough business conditions in early 2001 as well, though they have been able to increase prices an average of 3 cents per pound.
But industry analysts Rick Smith and Pat Duke — as well as an executive with top player Shintech Inc. — all see signs that better days are ahead.
Smith, with Houston-based Chemical Market Associates Inc., said at his firm's World Petrochemical Conference that PVC will lead the petrochemical rebound, just as it was the first to slide in 2000.
"The fundamentals are all there for PVC to take off," Smith said.
Smith projects that U.S. and Canadian PVC operating rates will climb into the high 80 percent range later this year and stay there through 2002. U.S. and Canadian PVC demand should total 5.8 percent in 2001-02.
Duke of DeWitt & Co. Inc. in Houston sees the bounce occurring a little later, with operating rates bottoming out at about 84 percent in mid-2002, before surging to the 90 percent mark in 2004.
The "major destocking" of inventories that occurred in late 2000 have thinned PVC users' reserves, Duke added at his firm's World Petrochemical Review, also held in Houston. Smith said those low levels will increase buying later this year.
With his firm adding a total of 1 billion pounds of capacity this year at its new Louisiana plant, Shintech controller Dick Mason understandably is optimistic that the market will recover as well.
"There are obviously strong concerns about the economy today," Mason said in a March 27 interview in Houston. "But there's nothing structural going on as far as deselection, where customers are going to another material, or where PVC is pricing itself out of the market."
The 2002 market also will be affected by Livingston, N.J.-based Formosa Plastics Corp. USA's decision to add about 500 million pounds of capacity through a debottlenecking in Point Comfort, Texas.
Duke added that high natural-gas costs could prevent exports of North American PVC — which plummeted 34 percent in 2000 — from recovering, creating a short-term challenge for North American PVC makers.
"There's not a lot of room for producers to go down [in margin]," Duke said. "They'll have to manage their production better, since they're essentially out of the export market."
Smith pointed out that PVC production in the 2000-05 time frame could be limited, however, since announced PVC expansions far surpass similar announcements in vinyl chloride monomer and ethylene dichloride feedstocks.
But Duke and Smith each alluded to some silver linings in the PVC market in the next year.
With the material predominantly connected to construction-related uses, PVC may be positioned better than other plastics, Duke said, since governments sometimes use infrastructure buildups to push their countries "back from the brink" economically.
Smith said he has faith that the U.S. housing market will be lifted by the House of Representatives' recent approval of President Bush's proposed tax cut.
"The emotional impact of the tax cut, combined with a drop in energy prices, is going to pick up the U.S. economy," he said.