Chemical profile: Europe PVC

17 May 2013 09:49  [Source: ICB]

Polyvinyl chloride (PVC) is available in rigid or flexible form. Rigid has the largest demand, particularly in construction where it is used for pipes and fittings, and in window profiles. Flexible PVC, which contains a large amount of plasticizer, has outlets in calendered sheet, wire and cable coating, flooring and furniture.

The European PVC market is oversupplied because of the weakness in downstream applications such as construction and automotive, caused by the weak European economy.

Financial services group Credit Suisse estimates the European market is 30% oversupplied. The magnitude of the oversupply has meant that production problems and financial issues at PVC producers have not led to a tightening of the market, and sellers have not been able to achieve margin improvement.

Capacity utilisation has been reduced to help balance the market, but this makes the cost of production more expensive for producers.

European PVC margins are thin because of high feedstock costs and weak downstream demand. Integrated sellers targeted rises of up to €70/dmt in Q2 caustic soda contracts to help improve their position, but this was opposed by buyers and most contracts rolled over.

PVC producers have tried to improve margins in 2013, but buyers have resisted because their downstream markets, in particular construction and automotive, are still weak.

This has meant that contract price movements have generally been close to changes in the monthly feedstock ethylene contract price. Following a €100/tonne fall in the ethylene contract price for May, producers said they would be targeting decreases of €20-30/tonne in an effort to improve margins.

However, buyers are resisting this and are aiming to achieve the ethylene pass-through of €50/tonne. Spot prices are also decreasing, on a combination of low demand and falls in ethylene costs. Prices were at €800-830/tonne FD (free delivered) EU in mid-May, compared with €830-880/tonne in January.

Suspension polymerisation is the most common process because the resins are the most versatile. Emulsion polymerisation is used to form latexes with a fine particle size more suitable for paints, paper, fabric finishes and printing inks. Mass polymerisation gives a powder resin that produces high-clarity film.

Major changes are set to take place in the European market as producers respond to weak demand and oversupply, particularly at the three biggest PVC producers - INEOS, Solvay and KEM ONE.

INEOS and Solvay have signed a letter of intent to combine their chlorvinyls businesses into a 50:50 joint venture. This would form one of the world's largest PVC producers. The transaction is subject to anti-trust approvals, and some PVC players in Europe have said it will be interesting to see how European authorities react to the plan as some estimates give it a 50% market share in Europe.

Solvay said that demand for PVC in Europe has dropped by 30% since 2007. European producers will also be put under further pressure from the growing gap between EU and US energy and petrochemical scenarios, as the US benefits from its shale gas boom.

Some European buyers have said they are looking at purchasing more US PVC in the future, and cheap US material could also put pressure on European sales to traditional export markets such as Turkey.

INEOS ChlorVinyls is discontinuing production at three plants, in the UK and Germany, due to difficult economic conditions. It has focused all UK PVC production at its Newton Aycliffe site, meaning the closure of a small-scale PVC unit at Runcorn. It will reconfigure its Runcorn vinyl chloride monomer (VCM) plant to produce ethylene dichloride (EDC) intermediate for internal use. In Germany, the company brought forward the closure of its mercury chlorine cellroom at Wilhelmshaven.

Changes are also expected at France-based producer KEM ONE SAS, the upstream business of vinyls producer KEM ONE. After KEM ONE SAS went into receivership in March, its former owner Arkema and Total agreed to provide funding for six months while plans for the future are finalised. Spanish producer Ercros announced in February that it planned to close the electrolysis plants and chlorine derivatives at its facility at Flix, because high costs had affected their viability.

By: Glynn Garlick

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