Increased imports of finished goods made from flexible PVC are a bad sign for processors and for the overall U.S./Canadian PVC market as well.
Imports of such products as wallpaper and flooring will dampen the U.S./Canadian PVC market through the end of the decade, according to Steve Brien, global chlor-alkali and vinyls leader for Chemical Market Associates Inc. in Houston. Brien spoke at the Plastics Processors Conference hosted by his firm Aug. 16-17 in Boston.
PVC demand in that region for 2006 will be similar to 2005, in that both years will be short of 2004 levels. Most of the 2005-06 demand loss will come from flexible PVC products that are vulnerable to imports.
``It's hard to ship [rigid PVC] pipe in a cost-effective manner because there's so much air involved,'' Brien said. ``But [flexible PVC] wallpaper, flooring and blinds can be shipped easily.''
U.S. imports of flexible PVC floor and ceiling tiles grew 50 percent between 2000 and 2005, and Brien said imports of those and other finished goods ``are here to stay.'' As a result, overall U.S./Canadian PVC demand growth will average only 1 percent annually between 2000 and 2010. Capacity will grow at an annual rate of less than 1 percent in that period, Brien said.
This somewhat downbeat outlook comes at a time when return on investment in the PVC industry is the highest it has been in 15 years, according to Brien. But such returns are likely to decline through 2008 before going up again. High costs for chlorine feedstock and energy will lead to stagnant growth and lower profit margins in the near future, Brien explained.
A drop-off in U.S. housing starts also will play a role - since more than half of total PVC uses come from the construction market - but Brien said that impact won't be as much as some might expect.
``Resin production, pipe production and housing starts have never correlated,'' he said. ``There's more PVC in infrastructure and roads than there is in a house itself, which uses mostly small-diameter [PVC] pipe. It only makes a difference if you're putting in a whole new subdivision that requires new roads.''
Essentially, U.S./Canadian PVC growth is expected to track gross domestic product growth at a multiple of 1-1½. Global PVC demand growth should be healthier, checking in at 4.2 percent between 2005 and 2010.
``When the economy is good, governments are spending a lot of money on construction projects and that's good for PVC,'' Brien said.
In the short term, the North American PVC market will be affected by new capacity from Shintech Inc. and Georgia Gulf Corp. But even with that new capacity, PVC makers are expected to continue to run tight inventories. Currently, Brien said, producers are operating with about five days of inventory. As recently as 1998, many producers would have 20 days available.
On the pricing front, Brien said he expects market prices for North American PVC to peak this year and decline through 2010.