Exports saved the day for the U.S./Canadian PVC market in 2010. And that story might repeat itself in 2011.
The U.S. has a special situation in PVC, said market analyst Mike Smith with Chemical Market Associates Inc. There's low domestic demand, excess capacity and lower production costs from ethylene and ethane derived from abundant natural gas in the region.
It also has lower electric costs to make chlorine, and most PVC production is on the Gulf Coast, which makes it easier to export, Smith said at CMAI's World Petrochemical Conference, held March 23-24 in Houston.
Of course, the reason that North America has so much excess capacity is the collapse of the U.S. housing market. In recent years, annual U.S. housing starts have fallen from more than 2 million to less than 600,000. That's a big deal for the PVC market, where roughly 60 percent of demand comes from construction.
With the recession, domestic [PVC] demand plummeted, Smith said. Pipe producers are having another bad year, operating at 55-60 percent. They're trying to sell pipe to municipalities that don't have any money.
On paper, this looks like it will be a several-year issue, through 2011-12, if not longer. PVC is a good product but it's in a tough situation.
Smith added that he expects low U.S. PVC costs vs. the rest of the world to continue for at least the next four or five years. At times, the U.S. advantage approaches 10 cents per pound. U.S.-made PVC can command higher prices overseas than it can in its own backyard.
Most PVC exported from North America ends up in South America and the Middle East. Although the Middle East also has low-priced natural gas feedstocks, resin makers there would rather use that resource on materials that are less complicated to make than PVC, Smith said. North American PVC exports totaled almost 5.3 billion pounds, with Smith expecting that number to reach almost 6.2 billion pounds by 2015.
Globally, Smith said that PVC profit margins in China remain poor because of excess capacity from coal-based production. PVC profit margins in Western Europe also remain low. Global PVC capacity expansions are expected to slow down, averaging less than 3.8 billion pounds per year.
In 2013-15, global capacity will get less than the 3.3 billion pounds of new supply needed to keep up with demand, according to Smith. This trend will reduce the amount of excess PVC capacity available. Overall, global PVC demand should average 4.6 percent growth annually between 2010 and 2015, he said.
The ranks of the world's largest PVC makers also are likely to change by 2015, with two Chinese firms China Salt Industries in Beijing and Xinjiang Zhongtai Chemical Co. Ltd. of Urumqi joining the top 10. Shin-Etsu Chemical Co. Ltd. of Tokyo will remain the world's largest PVC maker, but its share of capacity will decrease from 7.8 percent in 2010 to 6.9 percent in 2015.
Shin-Etsu and Solvay Group, the No. 4 player, remain the only true global PVC suppliers, with production in multiple regions, Smith said. Shin-Etsu leads the PVC market in North America as Shintech Inc. of Houston.
A major Shin-Etsu plant with 1.2 billion pounds of annual capacity in Kashima, Japan, has been taken off-line by the terrible earthquake and tsunami there, but excess capacity in the region should be able to handle demand, said CMAI analyst Steve Brien. Shin-Etsu's Kashima plant is expected to be out of commission for at least three months.