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Outlook for the International PVC Market

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Presentation on theme: "Outlook for the International PVC Market"— Presentation transcript:

1 Outlook for the International PVC Market
June 2005 Stephen Harriman – Harriman Chemsult

2 The PVC market China In Summary

3 PVC production by region, 1995-2005
35 Asia North America 30 West Europe Others 25 20 15 10 5 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

4 World PVC balance, 1990-2004 40 Capacity 35 Production 30
Apparent Consumption 25 20 15 10 5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

5 Regional PVC Prices 1200 1000 800 600 400 200 1998 1999 2000 2001 2002 2003 2004 2005 Asia Spot $/mt cif West Europe, Domestic Market, Pipe (Competitive Converters) €/mt fd USA, Domestic Market, Pipe (Competitive Converters) $/mt

6 North American vinyl sector integration
FPC Westlake OxyVinyl Georgia-Gulf Royal Group Certainteed ShinTech Chlorine EDC VCM S-PVC Finished products

7 European vinyl sector integration
SolVin LVM EVC Arkema Aiscondel Vinnolit Vestolit Norsk ShinEtsu Cires Hellenic Oltchim Borsodchem Anwil Spolana Chlorine EDC VCM PVC Finished products

8 The PVC market China

9 Outside investment in Chinese PVC
YES NO Japan: Tosoh South Korea: LG Taiwan: FPC USA: Westlake Japan: ShinEtsu South Korea: HanWha USA: Georgia Gulf USA: OxyVinyl

10 Chinese PVC output in a global context
35 China 18.6 14.2 30 ROW % China 25 20 4.5 15 10 5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

11 Chinese PVC balance 8000 Apparent Consumption 6000 Exports Imports
4000 Production 2000 -2000 -4000 -6000 -8000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

12 The importance of imports in China
9000 60 Imports 50.1 4.2 36.5 26.1 8000 Production 50 % Imports 7000 6000 40 5000 Production/Imports (000mt) % Imported 30 4000 3000 20 2000 10 1000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

13 Implications of Chinese PVC self-sufficiency
There are two implications: a) increasing availability of Chinese exports and b) more importantly, a dislocation effect for existing suppliers. Until recently the prospect of Chinese PVC exports of consequence was not an issue. The drop in domestic prices in China, however, has prompted some coastal producers to export material. The small scale of this trade means that this is currently more of a psychological, rather than volume, issue, but it does illustrate the change in the complexion of the Chinese PVC balance. There will be an intermediate phase where PVC flows both in and out of China, but over the longer term there is the spectre of Chinese exports occurring on a more structured basis.

14 Implications of Chinese PVC self-sufficiency
Changes in the pattern of PVC trade into China have the potential to cause a ripple effect around the world. Possible scenarios include: Increased Asian exports to the west coast of the USA Increased Asian exports to India and the Middle East A subsequent dislocation impact of material from these areas potentially affecting Europe. In terms of dislocation, the major victims will be countries like South Korea, Taiwan and Japan. The perception of acetylene-based PVC is also changing. Although certain producers manufacture questionable quality material, the newer plants are able to offer a credible export alternative to ethylene based PVC.

15 Sources of Chinese PVC imports 2003
Other Asia 3% Thailand 7% Indonesia 4% Japan 24% Taiwan 29% South Korea 11% Asia 78% Others 22% Europe 10% (largely Russia) North America 9% (mostly USA) Others 3%

16 Importance of China as a PVC destination
100% USA Indonesia Thailand Malaysia South Korea Japan Taiwan 90% 80% 70% 551 470 213 60% 50% 40% 30% 1235 20% 10% 0% % ROW % China

17 Importance of China in World PVC trade
30 World Imports China Imports 25 % China 20 Imports (mt) % China 15 10 5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

18 Chinese PVC capacity One of the misinterpretations of the development of the Chinese industry has been the belief that the acetylene route is a) an old technology and b) that is places limitations on plant capacity. Both these myths have been dispelled. The majority of new expansions in China are acetylene-based and the size of new acetylene plants is now well into the ,000mt/year scale. The Western model of integrated cracker-vinyl plants has not really evolved in China because of the success of the acetylene route and the reluctance of olefin producers to get involved with chlor-alkali.

19 Average PVC plant size by region 2005
400 347 300 200 149 117 101 100 Asia World Africa North America Western Europe Latin America Oceania Eastern Europe Middle East

20 Average Asian PVC plant size 2005
350 327 300 250 200 160 150 117 97 100 50 Asia Asia China Japan India Taiwan South Excl. China Korea

21 Chinese limiting factors
The development of the vinyl industry in China is not without its growing pains. These can be summarised: Economy – outside of the coastal regions, China is fundamentally a rural economy. Logistics – there is a problem in China, with a domino-effect of getting product out of the market: this has underpinned the development of the acetylene route as you also can’t move ethylene/EDC/VCM any distance in inland China. Caustic soda – logistics also affects the movement of caustic soda, which is largely sold as a 50% solution. This can inhibit operating rates at chlor-alkali plants. Raw material shortages – power, salt and ethylene

22 Regional production costs
350 1999 2001 2002 2003 2004 2005 300 250 200 150 100 50 Middle Brazil Western Europe China Japan USA East

23 Regional power cost range 2005
350 300 250 200 150 100 50 Middle Brazil Western China Japan USA East Europe

24 Chinese salt trade balance
1500 +911 1000 500 -500 -1000 Exports -1500 Imports Net trade -2000 -1345 -2500 2001 2002 2003 2004

25 New Asian PVC projects by feedstock type
Vietnam Philippines Indonesia Japan Thailand South Korea India China Mer. Ethylene 2% China Unspecified 26% Acetylene 24% China VCM Imp. 9% China Ethylene – 26% ETHYLENE OTHERS 50% 50%

26 Chinese capacity by location and region
NORTH WEST 6% 28% NORTH EAST 37% ALL CHINA EAST 24% Acetylene Ethylene Merchant ethylene Imported EDC SOUTH Imported VCM 6%

27 Future capacity in China by type
Acetylene 28% Ethylene 29% Merchant ethylene 3% Imported VCM 10% Unspecified 30%

28 Acetylene-based PVC economics
Acetylene cost: RMB 2100/mt Calcium carbide price RMB 5619/mt Acetylene raw materials RMB 250/mt Conversion cost RMB 6319/mt Total cost of acetylene VCM cost: RMB 2857/mt Acetylene cost RMB 1289/mt Hydrogen chloride cost RMB 250/mt Conversion cost RMB 4846/mt Total cost of VCM PVC cost: RMB 4945/mt VCM cost RMB 300/mt Conversion cost RMB 5695/mt Total cost of PVC Cost of PVC from carbide: Full cash cost ex-works RMB 5695/mt (US$688/mt) Harriman Chemsult estimates

29 The PVC market China In Summary

30 In summary North America – the major event is the potential commissioning of the Shintech unit and dislocation to the market of the introduction of new major capacity. Europe – the ongoing absence of investment owing to poor margins and so a continuation of the relative balance across the region. There are longer term prospects for investment in Russia. Middle East – the fundamental problem of cheap feedstock versus limited domestic demand, with a continuation of the model of exporting ECUs (caustic soda & EDC/VCM). Africa – the absence of any investment. Latin America – a growing caustic soda deficit stimulating demand for new vinyl capacity. Asia – the potential inability of China to absorb increases in supply. The prospects for a dislocation to existing exporters to China and the possibility of Chinese exports of PVC.

31 New PVC capacity, 2005-10 China 73% Asia Others 81% 19% India 5%
Other Asia 3% Asia 81% Others 19% Middle East 6% Europe 7% Others 6%

32 PVC capacity by region 35 30 25 2001 2005 20 2010 15 10 5 Asia Europe
Asia Europe North America Middle East Others

33 In summary… When China sneezes… …the World catches a cold


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