FocusNew US PVC plant seen price neutral

06 August 2008 19:31 [Source: ICIS news]

Shintech new PVC plant may have little effect on prices By Greg Holt

HOUSTON (ICIS news)--US polyvinyl chloride (PVC) producer Shintech’s new facility in Louisiana could be neutral for US prices for PVC and caustic soda despite the size of the $1.9bn (€1.2bn) production complex, sources said on Wednesday.

A source close to Shintech said the facility in Iberville Parish, south of Plaquemine, began operating on 4 August and initially produced only chlorine, caustic soda and ethylene dichloride (EDC) pending further equipment testing.

The facility’s initial PVC production capacity of 300,000 tonnes/year will increase to 716,000 tonnes/year after two additional phases of construction, Shintech said. The plant will also have an initial caustic soda production capacity of 300,000 tonnes/year.

The next expansion phase at the complex is expected to be completed by the end of 2009.

Chlorine, caustic soda and the PVC feedstock vinyl chloride monomer (VCM) are all new products for Shintech, a subsidiary of Japan’s Shin-Etsu, and they were intended to provide greater vertical integration to the company’s PVC production process.

While the facility’s VCM and EDC output will be used internally, competitors and buyers in the US PVC and caustic soda markets said the impact of the new Shintech complex on supply/demand fundamentals has been a subject of concern for many months.

The two markets are in many ways opposite. While the US PVC market is burdened by weak domestic demand, critically tight supply conditions in the caustic soda market have sent prices soaring.

“For caustic soda, our timing to enter this market happens to be the best ever,” the source close to Shintech said.

Yet the new capacity may not provide much immediate price relief for buyers, industry participants said.

One caustic soda buyer said much of the material produced by Shintech’s new plant has already been contracted to alumina producers in Brazil that have been expanding their facilities and will add new demand in August to an already tight global market.

“After the new supply capacity from Shintech and new demand in the market have been weighed against each other, the net effect is rather miniscule,” the buyer said.

Yet the source close to Shintech said the company has made caustic soda contracts with buyers in the US as well as export markets.

In the PVC market, competing producers have welcomed several consecutive delays in the Shintech plant start-up amid what has been described as an oversupplied market.

However, one producer said domestic prices have been pushed up by feedstock costs rather than supply/demand factors. The greater price impact of more material could be on the export spot market, where Shintech would likely direct surplus material.

The additional supply could stabilise a surge in PVC export spot prices from an average of $1,085/tonne FOB (free on board) US Gulf in mid-June to $1,275/tonne on 1 August, the producer said.

On the other hand, a buyer said Shintech might further delay the start-up PVC production at the plant until demand improves.

Regardless, the impact of Shintech’s new Louisiana facility will evolve over the next several years as PVC and caustic soda production at the complex increases with additional phases of capacity expansion.

($1 = €0.65)

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By: Greg Holt
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