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

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Presentation on theme: "Outlook for the International PVC Market June 2005 Stephen Harriman – Harriman Chemsult."— Presentation transcript:

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

2 China In Summary The PVC market

3 Asia North America West Europe Others PVC production by region,

4 World PVC balance, Capacity Production Apparent Consumption

5 Regional PVC Prices 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 OxyVinyl Georgia-Gulf ChlorineEDCVCMS-PVCFinished products FPC Westlake Royal Group Certainteed ShinTech

7 European vinyl sector integration Cires Hellenic ShinEtsu Vinnolit Vestolit Norsk SolVin LVM EVC Arkema Aiscondel ChlorineEDCVCMPVCFinished products Oltchim Borsodchem Anwil Spolana

8 China The PVC market

9 Outside investment in Chinese PVC Japan: Tosoh South Korea: LG Taiwan: FPC USA: Westlake Japan: ShinEtsu South Korea: HanWha USA: Georgia Gulf USA: OxyVinyl YESNO

10 Chinese PVC output in a global context China ROW % China

11 Chinese PVC balance Apparent Consumption Exports Imports Production

12 The importance of imports in China Production/Imports (000mt) % Imported Imports Production % Imports

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

16 Importance of China as a PVC destination 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% USA Indonesia Thailand Malaysia South KoreaJapan Taiwan % ROW % China

17 Importance of China in World PVC trade Imports (mt) % China World Imports China Imports % China

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 North America Western Europe Middle East Latin America Oceania World Eastern Europe Asia Africa

20 Average Asian PVC plant size Asia Excl. China ChinaJapanIndiaTaiwanSouth 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 Middle East BrazilWestern Europe ChinaJapanUSA

23 Regional power cost range Middle East BrazilWestern Europe ChinaJapanUSA

24 Chinese salt trade balance Exports Imports Net trade

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

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

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

28 Acetylene-based PVC economics Cost of PVC from carbide: RMB 5695/mtTotal cost of PVC RMB 300/mtConversion cost RMB 4945/mtVCM costPVC cost: RMB 4846/mtTotal cost of VCM RMB 250/mtConversion cost RMB 1289/mtHydrogen chloride cost RMB 2857/mtAcetylene costVCM cost: RMB 6319/mtTotal cost of acetylene RMB 250/mtConversion cost RMB 5619/mtAcetylene raw materials RMB 2100/mtCalcium carbide priceAcetylene cost: Full cash cost ex-worksRMB 5695/mt (US$688/mt) Harriman Chemsult estimates

29 China In Summary The PVC market

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, China 73% India 5% Other Asia 3% Asia 81% Others 19% Middle East 6% Europe 7% Others 6%

32 PVC capacity by region AsiaEuropeNorth AmericaMiddle EastOthers

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


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