OUTLOOK ’19: PVC watches for trade peril amid ample opportunity and expansion

HOUSTON (ICIS)–The US polyvinyl chloride (PVC) market is watching the trade threats between China and the US for signs of potential market disruption in 2019 as ethylene integration continues at US plants and capacity additions loom.

The US market has enjoyed growth in production and sales in 2018 despite the threats traded between the two countries. Even during the trade worries, the industry has enjoyed production and demand growth during the past year and expects 2019 to provide more.

Shintech, Formosa Plastics and Westlake Chemical have incremental production capacity expansions on the horizon, Westlake’s being the one expected to come on line during the year, though when exactly during the year, is not clear.

China is the second-largest export market for US PVC. But most of the US material shipped to the region is transformed into finished goods and re-exported, avoiding the tariffs now in place.

But the US has threatened to increase the tariffs on goods from China to 25%, a move that has been called off in early December as a stimulant to continue trade talks between the two countries.

US producers have said that they trade war thus far has not materially harmed the industry or caused major trade flow disruptions.

“However, these tariffs will have an impact on the industry and our business in 2019 if they continue on their current path,” Steve Bender, chief financial officer for Westlake Chemical told equities analysts in November. “On the other hand, if we see trade tensions in tariffs ease, it will be broadly positive for global trade, our industry, and our business.”

Beneath the tariff threat to market tranquility lies solid outlook for US construction prospects.

US non-residential construction spending grew by 4.7% in 2018, according to mid-year estimates, but is expected to grow 4% in 2019, according to the American Institute of Architects.

Housing starts for single-family use are expected to decline slightly, to 815,000 starts, but still almost level with the 2018 level, according to Dodge Data and Analytics.

Growing headwinds for construction, including rising interest rates and higher material costs, have been largely offset by corporate tax relief and a tighter employment market, Robert Murray, chief economist for Dodge said earlier in the fourth quarter.

That is good news for Westlake, which expects to add capacity in 2019 at its Geismar plant later in the yearm, perhaps during the third quarter.

Shintech and Westlake both plan to launch ethane crackers in early 2019 to further back integrate to ethane feedstock.

Those moves are in line with the current conventional wisdom that inexpensive US ethane will continue to give US producers a significant production-cost advantage for feedstocks as well as power.

US producers expect that European producers will cut back production and shut older production capacity, giving the US producers greater freedom to meet their aspiration to become suppliers to global markets.

The US and Canada exported exported 33% domestic production through the first three quarters of 2018, or about 1.87m tonnes, according to the American Chemistry Council and Vault Consulting.

That proportion is expected to increase in 2019.

Major US PVC producers include Shintech, Westlake Chemical, OxyVinyls and Formosa Plastics.

Focus article by Bill Bowen

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