PVC Market Dynamics
Good Times For Vinyls To Continue Through 2008
A slowdown in capacity additions will sustain high operating rates over the next three years. Despite a forecast slowdown in demand growth, lower capacity additions will stabilise the supply/demand balance over 2007-2008, before operating rates decline towards a trough in 2011. Global operating rates have remained high due to strong demand growth in most regions over 2005-2006, despite annual capacity additions of over two million tons per year in China alone.
The global picture however conceals some major local distortions. As over 90 percent of capacity additions in the last to years have been made in China, the region’s import requirement has declined sharply, leading to difficulties for the neighbouring exporters Japan, South Korea and Taiwan. The bulk of the capacity growth in China has been coal/acetylene-based, thus unaffected by the high crude oil prices, and changing the price setting mechanism in the region. The result has been a steep decline in margins for East Asian producers, while their counterparts in Western Europe and the United States enjoyed a cyclical increase in margins.
PVC consumption continued its recent strong growth in all major markets except the United States, where a decline in house building activity contrasted the buoyant construction market in other areas. Demand growth is forecast to peak in 2007, before a decline in growth rates over 2008-2010.
Following the massive capacity development in China over 2000-2006 which has seen PVC capacity increase threefold, the focus of capacity development is moving to North America and the Middle East over 2007-2008. EDC capacity in the Middle East is developing rapidly both for export and as part of integrated vinyls complexes. The Middle East is currently a significant net importer of PVC, but this position will reverse as the major new complexes develop.
In addition to integrated vinyls development, the Middle East will also develop excess EDC capacity for export, mainly to Asia. Vinyls capacity in China includes some VCM/PVC production based on imported EDC, some fully integrated EDC/VCM/PVC production, but remains largely focussed on coal/acetylene based VCM, which enables the exploitation of inland coal resources, as well as reducing China’s requirement for imported petrochemical feedstock. Legislation announced to limit the development of uneconomical or environmentally damaging projects has not impeded the pursuit of large-scale coalfield based VCM/PVC plants based on acetylene. This industry in China has achieved such scale and momentum that the proportion of VCM produced from acetylene globally will increase from 6 percent in the year 2000 to 19 percent by 2008.The latest vinyls chain report published by ChemSystems in January 2007 investigates the market and growth profile of EDC, VCM and PVC, and details the expected plant developments and changes in global trade patterns.
Global Capacity Development
The massive capacity additions in China brought the capacity in Asia Pacific up to 50 percent of the global total in 2006. Capacity will continue to develop to serve the booming construction markets in Asia, increasing the region’s proportion of global capacity over time. Capacity in developed regions will remain comparatively stable, whilst developing regions such as Africa and South America will see higher growth. The most significant developments outside Asia will be in the Middle East, where major capacity developments will occur to serve the local supply defecit and develop an export position.
Global PVC Capacity
PVC Supply, Demand and Trade
Global operating rates remain very high following the peak in 2004. Operating rates have remained high due to strong demand growth, despite the major capacity additions in Asia. Operating rates are set to remain stable over 2007-2008 before a gradual decline over 2009-2011. The difficult market conditions in the vinyls industry during much of the previous decade have already led to widespread consolidation among producers, and the closure of uncompetitive capacity in most regions. The high demand growth in China has however permitted many small producers to keep operating, although some consolidation is also expected there during the next downturn.
Global PVC Outlook
©2007 Nexant, Inc.
