OUTLOOK '18: US VCM likely to remain below the radar in new year

03 January 2018 22:00 Source:ICIS News

HOUSTON (ICIS)--US vinyl chloride monomer (VCM) has become captive, produced almost exclusively by integrated makers of polyvinyl chloride (PVC) and exported almost exclusively through contracted transactions.

Spot business has almost all but disappeared – and 2018 is likely to hold more of the same.

That is because almost all VCM is polymerised to make PVC, its direct derivative, and most VCM is used internally by back-integrated makers of PVC.

That makes VCM prices tied to its derivative values, rather than dictated by feedstock costs, as are most precursor chemicals.

VCM prices have sagged during the last quarter of 2017, along with the PVC price. But they are expected to rise again early in 2018 as PVC processors and product manufacturers rebuild their inventory of resin.

What has changed in the spot export market is the joint venture between Occidental Chemical and Mexichem to build an ethane cracker at Occidental's Ingleside production complex near Corpus Christi, Texas. The 1.2bn lb/year (544,000 tonne/year) cracker started up early 2017.

As part of the deal, Occidental supplies Mexichem with VCM from the complex to Mexichem PVC plants in Mexico and Colombia.

Gone are the occasional spot buys that Mexichem would make for US material when its contracted shipments did not fulfill all of its PVC production needs.

Also gone are regular shipments to Australia to supply PVC there when that production closed in late 2015.

Besides that business, US VCM production capacity remains near the level needed for the manufacture of PVC.

That could change with new developments in Louisiana.

Shintech has filed for a permit to add VCM production capacity at its Plaquemine production centre. Part of that plan calls for expansion of its chlorine, ethylene dichloride (EDC) and VCM production capacity. But most market watchers do not believe that it will include further volumes available for spot markets.

It will, instead, be used to expand Shintech’s domestic and international sales of PVC from its US base of operations. Shintech's position on the Mississippi River makes it ideal for serving the US market.

Under the proposal, Shintech would expand PVC capacity to 2.215bn lb/year from 1.400bn lb/year, it said in a public notice filed with the US Army Corps of Engineers.

It would also build a plant that will produce chlor-alkalis, EDC and VCM, the permit said. Shintech did not list the capacities of the new plant.

Shintech did not say when operations could start at the plants if it chooses to develop the project.

The company, a division of Tokyo-based Shin-Etsu, is now building an ethane cracker to produce ethylene from ethane from cheap natural gas and further expand margins, as well as total sales.

Market experts believe that the US will likely in coming years gradually expand US PVC production and exports, becoming an even more important global supplier.

US PVC demand is expected to grow significantly in the US domestic market. And producers sell into export markets the material they do not sell domestically.

Domestic consumption by US PVC producers and the other trade changes have sent US VCM exports plummeting.

In 2016, that came to 2.76m tonnes, or 39% of all US production, according to production figures from the American Chemistry Council and data on exports of unplasticised PVC from the US International Trade Commission (ITC).

Major US VCM producers include Olin, Occidental Chemical, Westlake Chemical and Formosa Plastics.

By Bill Bowen