Yesterday the blog discussed caustic soda, and the recent importance of China's metal demand. Today it focuses on chlorine and PVC.
PVC is the largest end-use for chlorine. It is also critical for chloralkali producers when caustic demand is strong, as recently. Chlorine itself cannot be safely stored in large volumes, and so instead they rely on being able to combine chlorine with ethylene to make EDC/PVC.
In turn, housing is the key market for PVC - being used in pipes, wiring and house cladding. Thus US producers have faced a major challenge since 2006. New housing starts have fallen from an annual rate of 2.2m to just 650k, dramatically reducing US chlorine and PVC demand.
Potentially, therefore, US producers could have been forced to cut back profitable caustic sales, if they had been unable to move chlorine into PVC. But shale gas, and the cheap ethylene it provides from ethane, has come to the rescue.
Currently a remarkable ~40% of US PVC production is being exported.
The chart shows the history of this growth, based on GTIS (Global Trade Information Services) data. Net US exports of PVC more than doubled between 2006 (red column) and 2008 (blue) to 1.2MT, and then increased still further to 2.7MT in 2011 (orange):
• China's 2009-11 stimulus programme led to a surge in PVC imports to feed its housing bubble. US net exports grew four-fold from 77KT in 2008 to 334KT in 2011
• China's boom also boosted Latin America's mining exports (as discussed yesterday), and so supported the domestic economy. Net US PVC exports to the region thus grew 61% to 577KT between 2009 - 2011
US producers would have struggled to compete in export markets without the ethylene cost advantage provided by shale gas, especially since 2009. Equally, their ability to make profitable co-product caustic soda sales would also have been reduced.
Worryingly, though, latest GTIS trade data shows net US PVC exports now seem to have gone ex-growth. 2012 data to the end of February shows them similar to 2011 levels at 395KT.
There also seems little sign of any major recovery in US housing markets, as the blog will discuss on Saturday.