OUTLOOK '18: US EDC could see production growth, new demand from Europe

03 January 2018 21:00 Source:ICIS News

HOUSTON (ICIS)--The US ethylene dichloride (EDC) market is likely to see robust production growth and rising export sales during 2018 as new ethane crackers come online and demand for the feedstock grows in global markets.

But prices may lag.

US producers ended 2017 by using EDC as a way to sell off additional chlorine production as they capitalised on higher prices for chlorine’s co-product, caustic soda. That sent chlorine production long and EDC values plummeting.

Several factors make the 2018 outlook opaque for EDC: new demand is expected from Europe for US export sales; rising domestic demand for PVC will cut into PVC exports; and PVC producers in other global regions will likely seek out cheap US feedstock.

Supply will not likely be a problem.

US EDC 2017 production and exports are up, continuing a years-long trend based on cheap ethylene production in the US, but with a new twist.

Most EDC goes to the production of PVC. US producers have more EDC capacity than PVC production capacity.

US producers through September have put out 16.1bn lb (7.3m tonnes) of EDC, up 2.6% from the first three quarters of 2016.

Exports, too, are stronger, up 3% through September, according to figures from the US International Trade Commission (ITC).  US exports surpassed 1m tonnes in September, according to ITC figures.

The export growth comes despite disruptions to trade flows.

Shipments to the US’s largest EDC customer, China, are down 36% this year. That makes China the consumer of one-fourth of US exports, compared with one-third of US shipments in 2016, according to ITC figures. Shipments are also down to Egypt and Japan.

But new markets for US sellers in Brazil, Thailand and India have more than made up for the declines elsewhere.

Exports were down slightly for 2017 through August, but have rebounded on lower prices offered for EDC displaced when a PVC production line was put out of commission by Hurricane Harvey.

US EDC prices have continued to lower and appear to be likely to end the year at near $100/tonne, less than the cost of raw materials for chlorine and ethylene.

That is a trend that could continue into 2018 as integrated producers of PVC sell the caustic soda at premium prices.

But new demand from Europe is expected to emerge as chlor-alkali plants that use mercury cell process close on the implementation of environmental rules prohibiting that process.

With the chlor-alkali plants shut, a couple of PVC producers will be left without the necessary chlorine and caustic soda production needed to make EDC and will have to find an alternative source.

US product should be available and inexpensive enough to be a ready solution.

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

By Bill Bowen