The aging of the U.S. population could be good news for the North American PVC industry.
``The shift in the age distribution of the population will favor higher spending on remodeling of homes,'' Brad Esckilsen, PVC marketing director for Formosa Plastics Corp. USA, said at the DeWitt World Petrochemical Review, held March 24-25 in Houston.
That would mean more of a market for PVC siding, windows and doors. The portion of the population aged 45-64 is expected to increase substantially in the next several years, according to Esckilsen. Such a move should offset a drop in new home construction that could materialize if interest rates increase. Interest rates are just above 5 percent, but Formosa anticipates they'll start to climb later this year.
Construction-based uses account for about 60 percent of U.S./Canadian PVC demand, and almost 55 percent of that construction is residential. A recovery in commercial construction, which uses more PVC per square foot than residential work does, also is expected in 2004, which could offset a drop in new homes.
Livingston, N.J.-based Formosa is North America's third-largest PVC maker, with a market share of about 16 percent. Esckilsen said Formosa expects U.S./Canadian PVC demand to grow 4 percent in 2004, following a drop of 2 percent in 2003.
Operating rates in the region should be above 90 percent in 2004, Esckilsen said, even if Westlake Polymers LP of Houston restarts a 575 million-pound-capacity plant in Geismar, La. Westlake will operate the plant, which it acquired from Borden Chemicals & Plastics LP, as Geismar Vinyls LP.
The North American market also could be affected in 2005 by Shintech Inc.'s anticipated restart of a plant in Addis, La., with 800 million pounds of annual capacity.
In early 2004, outages of PVC feedstock vinyl chloride monomer have limited PVC production, tightening the market, according to Esckilsen. Those conditions, along with traditional spring builds of inventory in the construction market, have helped producers raise prices an average of 4 cents per pound to date this year.
Rick Smith, an analyst with Chemical Market Associates Inc. of Houston, said PVC profit margins will be higher from 2004-06. But North America now is a mature market, where capacity additions will be made only to meet regional market needs, he added at the CMAI World Petrochemical Conference, held March 24-25 in Houston.
China also is poised to become the world's largest PVC maker by 2010, at which point it will represent 34 percent of the global market, according to Smith, who anticipates further shakeout in the market, with big producers growing even bigger and weaker players exiting the field.