On the scales

19 December 1994 00:00  [Source: ACN]

Long dependent on the west for supplies of chlorine in the form of EDC or VCM, Asia-Pacific PVC producers are now looking to integrate back themselves to help close the growing supply gap. But can such decisions be justified economically?

COMPETITIVENESS of integrated PVC projects being considered for Asia is delicately balanced, say industry sources. Major areas of difficulty likely to be encountered by local chloralkali and PVC producers include cost and reliability of electricity supplies and the lack of local manufacturers of sodium chloride and the small number of major end uses of caustic soda.

In most developing economies, it has been usual for new-build PVC resin plants initially to utilise imported vinyl chloride monomer (VCM).

This may be followed by the building of a VCM plant often using imported ethylene dichloride (EDC).

Beyond that is the fully-integrated plant utilising chlorine and ethylene, whereby the chlorine, because of its corrosive nature, has to be generated locally, along with the co-production of caustic soda.

Chlorine production is very energy intensive, so to be a world class chloralkali producer it is necessary for plant to have at least two of the following: cheap salt; a cheap and reliable source of electrical power; and a strong caustic market or protected domestic market.

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Several sources spoken to, while recognising that lack of local salt is a difficulty, said it is nevertheless not 'an insurmountable barrier'. China and India both have plans to increase salt supply but desalination plants are unlikely to be a major solution due to there being no lack of water.

Consumption of electrical power is a major factor in the production of chlorine, normally accounting for 70% of variable costs in western European plants. Electrical power consumption varies from 3200 kWh/tonne of chlorine in diaphragm cells to 2800-3000 kWh/tonne for the newer, more power-efficient membrane cells.

The developing countries of Southeast Asia are mostly short of power, unlike developed countries, which frequently have surplus generating capacity.

Typical costs for electrical power are 6-7cents/kWh in Southeast Asia, compared to 2-3cents/kWh off-peak costs in the US. Western European costs are between the two. The cost of electrical power in other parts of Asia, for example India, can be higher than those of Southeast Asia.

The reliability of the electricity supply is also a factor and if the power source goes down, because grid capacity is overstretched, for example, it can be very damaging to the electrochemical cell. Thus the higher costs in Southeast Asia could account for an extra US$110-$130/tonne of chlorine compared to US production.

Many of those spoken to saw the cost and supply of electrical power as being one of the most significant issues. Reliability of the power source, which has been a problem for example in parts of China, could threaten not only the electrochemical generation of chlorine and caustic but at the other end of the PVC process could significantly disrupt the running of the PVC plant despite its relatively modest electricity plant. Power costs, while being high in many parts of Southeast Asia, could in somes areas be off-set by means of government subsidy.

It is usual to evaluate the cost of chlorine to a producer as the cost of production of one tonne of chlorine less the revenue obtained from the 1.12 tonnes of caustic soda co-produced.

The figures show the effect of the differing power and production costs from region to region and also the effect on the chlorine value of the differing values of caustic soda.

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The cost of chlorine clearly feeds directly through to vinyl chloride costs, in that approximately 0.6 tonnes of chlorine is needed for each tonne of VCM produced.

Although there are salt fields producing brine in Thailand, for the most part there is not the availability of brine or solid sodium chloride that there is in the west. Very few desalination plants exist, although there is a possibility of a plant being built in Saudi Arabia.

Major chloralkali plants in Asia-Pacific
Company Location Capacity
chlorine/caustic
('000 tonne/year)
Process
Indonesia
Asahimas Subentra Cilegon, West Java 119 135 Membrane
Indochlor Perkasa Industries Serang, West Java 106 120 Membrane
Japan
Asahi Chemical Industry Nobeoka, Miyazaki 141 158 Membrane
Asahi Glass Ichihara, Chiba 192 215 Membrane
Kashima, Ibaraki 251 282 Diaphragm; membrane
Hokkaido Soda Tomakomai, Hokkaido 146 164 Diaphragm; membrane
Kaneka Takasago, Hyogo 181 203 Membrane
Kashima Chlorine & Alkali Kashima, Ibaraki 281 315 Membrane
Kureha Chemical Industry Iwaki, Fukushima 189 212 Diaphragm; membrane
Mitsubishi Kasei Kurashiki, Okayama 123 137 Membrane
Okayama Chemical Kurashiki, Okayama 126 142 Membrane
Showa Denko KK Kawasaki, Kanagawa 119 133 Diaphragm; membrane
Sumitomo Chemical Nihama, Ehime 151 169 Diaphragm; membrane
Toagosei Chemical Industry Tokushima, Tokushima 163 182 Diaphragm; membrane
Tokuyama Tokuyama, Yamaguchi 312 349 Membrane
Tosoh Shin-Nanyo, Yamaguchi 506 452 Diaphragm; membrane
Korea
Han Wha Chemical Ulsan, Kyongsangnam-do 134 134 Membrane
Yeochon, Chollanam-do 227 227 Diaphragm
Taiwan
Formosa Plastics Jenwu City 156 177 Membrane
Taiwan Chlorine Kaohsiung Hsien 105 115 Membrane
Thasco Chemical Samut Prakan   32 103 Mercury
Samut Prakan Cell, membrane
Total 5600 6400      

This lack of availability will result in the need for salt to be imported from areas including the US, Australia and Mexico.

In most cases chloralkali plants, in Southeast Asia in particular, are smaller than those in Europe and the US, with many having a capacity well below 100 000 tonne/year of both chlorine and caustic. Outside Japan, few integrated plants producing chlorine and caustic through to PVC exist in Asia.

Exceptions to this are the Asahimas Subentra plant in west Java, those of Han Wha at Ulsan in South Korea and Formosa Plastics at Jenwu City, together with the planned backward integration of the Solvay/Vinythai plant at Rayong in Thailand.

Asia lacks the large-scale, end-use caustic markets in place in the US and Europe, such as inorganic and organic chemicals manufacturers and the pulp and paper industry. The latter two consume 25% of US demand.

Thus at times, when there may be insufficient local demand, caustic soda may have to be exported to a market in competition with world-scale producers with low power costs - for example, the Middle East, North America, western Europe - and in the case of the latter two, well-developed infrastructures. Australia is a likely target market where there is annual requirements of around 1m tonne for converting bauxite ore to aluminium.

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On a world scale, caustic soda demand, unaffected by the environmental pressures constraining chlorine, is likely to outgrow the demand for chlorine by around 1% through the rest of this century.

This could create a shortage by 2000, with the largest increase in demand in Asia.

During this period, the US could switch from a net exporter of electrolytic caustic soda to a net importer of caustic or, alternatively, it could satisfy this demand by direct substitution of soda ash for caustic soda where possible, or the conversion of soda ash to caustic soda.

However, caustic markets have tightened significantly this year, with western producers looking towards US$250-$300/tonne for large-scale export contracts for the start of 1995 compared to prices of US$30/tonne and below a year ago.

Stephen Harriman of Harriman Chemsult says: 'the problem of lack of major end-uses for caustic soda heightens the difficulties caused by caustic soda being a notoriously cyclical market. The short term observation is that caustic soda is very tight in the Far East with prices around US$400/tonne cif being reported'.

Sources within ICI claim that, owing to the tightness of caustic soda in many of the newly-developing economies of the Far East, due in part to demand from the detergent sector, there could be a problem in getting rid of the chlorine from chloralkali plants, particularly as chlorine comes under increasing environmental pressure in many areas.

The effect of the strengthening of the caustic soda price to around US$300/tonne on the chlorine value to a producer can be shown. Chlorine values in the US Gulf Coast, western Europe and the Middle East are likely to become negative, Japan close to break even. Chlorine values elsewhere in Asia are likely to remain positive.

Despite the burgeoning demand for PVC in Asia and, particularly, the strongly-growing economies of Southeast Asia, market observers suggest caution.

Paul Ray of Trichem claims 'there is not a sound financial reason for a rush of integrated plants in the Far East.

The capital required to build an integrated chlorine/EDC/VCM/PVC operation is greater than that required for a polyolefins plant and, with PVC being a cheaper polymer, the returns obtained per dollar of investment are higher from a polyolefin plant than from an integrated PVC plant'.

Jean-Paul Detournay, electrochemical products marketing manager at Solvay, says each of the three issues of salt, power and caustic had been carefully considered in its joint venture Vinythai project.

Rather than importing solid sodium chloride, it formed a joint venture with Thasco, an existing local producer of sodium chloride which had expanded its capacity. High purity salt is obtained by the evaporation of brine formed from injecting water to underground brine walls.

This, Detournay claims, 'gave the high purity salt required for its membrane cell technology which made the brine loop much simpler and consequently made the electrolysis investment more attractive'.

The power cost issue for this plant was addressed by locating the plant at a new industrial complex with a new cracker at Mab Ta Phut.

This investment attracted further local co-production of electricity giving the Solvay/Vinythai electrolysis project an attractive cost basis for its electrical power source.

Detournay plans to sell caustic soda largely to satisfy the local Thai market with some limited export opportunities. Caustic prices held up well in Thailand throughout this year, with rates being above US$200/tonne and never approaching the US$50/tonne and below levels which were experienced in the west.

According to Solvay, 'such plants could certainly prove an attractive investment opportunity but would essentially serve niche local markets rather than performing on a world scale.

'The bulk of the chlorine needed to satisfy the growing A-P demand for PVC would, for the foreseeable future, still expect to be satisifed by ethylene dichloride or VCM rather than by fully-integrated plants.'





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