A more healthy vinyl industry shows signs of pickup
January 1, 2006
The polyvinyl chloride (PVC) world''s health last year recovered from a poor year before, reaching a total capacity of more than 29 million tonnes.
Demand started inching up in late 2003 and the market remained bullish throughout the first half of 2004. The market improved despite additional cost pressures exerted from raw material price increases. Today, PVC global demand is running at 3%/yr.
The North American economy remained strong in 2004, leading to consumption of 7.2 million tonnes of PVC. This is just ahead of China, which has surpassed Europe with its 6.8 million tonnes. Chinese growth, for the last five years, was above 12% and it is expected to stay at 8% for the next five years. This high demand is fueled by an exploding economy. Unlike developed regions, the main Chinese driver is in the building and construction sector, especially the pipes and fittings market.
Higher demand than domestic production translated into 2.1 million tonnes of imported PVC last year, mostly from Asian neighbors. China still lacks adequate local vinyl chloride monomer (VCM) to increase its own production and last year it imported 1 million tonnes from Japan and the U.S.
This exceptional situation in China, highlighted by a level of industrial investment approaching 30% of GDP, led local vinyl players to invest in 1.5 million tonnes of additional PVC capacity during 2004. Almost the same amount will be invested in the coming two years. Most of these investments are based on acetylene technology using Chinese coal, much cheaper than the ethylene-based route, but at a higher energy cost. This helped reduce Chinese imports in 2004 by about 10%. High energy costs in North America led some players to shut down some PVC capacities to remain competitive.
This tight vinyl world market helped vinyl demand remain bullish in 2004, and it pushed prices up by more than 20%. At the same time, increased raw material prices added pressure, and rose even higher, as oil prices rose. Dependence on oil has pushed up the price of other commodity polymers, whereas PVC sustained some of its competitiveness, since PVC relies only 44% on oil derivatives.
The European economy slowed in 2004 due to the high-flying euro compared to the dollar. Demand for vinyl throughout the European Union, now composed of 25 unlike countries, is stronger in the "new" EU countries than in developed Western Europe. In 2004 more than 300,000 tonnes of PVC imports to Eastern Europe came from the West.
This higher demand in Eastern Europe is mostly due to a rising hunger for window and door profiles, which increased 15% in 2004 compared to 2003. Some major Western profile processors are moving some operations there or even further east, especially into Russia, which has exhibited unbroken demand. This sector is now the PVC leader in Europe, two years in a row, surpassing the pipe sector at about 1.5 million tonnes. PVC is now the dominant material for window profiles in Europe, accounting for more than 42% of the total market, mainly spurred on by rebuilding and renovation.
A key innovation in the profile sector has been development of wood-filled PVC products. Large processors, encouraged by new technology from machine manufacturers and additive suppliers, are now performing industrial trials. There has not yet been a clear pattern for forthcoming demand.
Another driver is the trend toward colored profiles, produced either by PVC coextrusion or film laminated to plain PVC lineals. The end PVC product exhibits an attractive wood-like pattern and avoids a glossy "plastic" appearance. From the processor''s standpoint, a general trend observed in Europe is ongoing consolidation within the industry, thereby forcing smaller processors to be more innovative to remain competitive.
The European pipe sector, using more than 1.4 million tonnes of vinyl in 2004, now lags behind profiles and is growing at 1%/yr, mostly driven by waste water pipe demand, where PVC remains predominant. In water distribution, PVC should improve its position because of its intrinsic high-pressure resistance of MRS 25. Biorientation of PVC pipes is seen as an interesting way to increase PVC''s pressure resistance. This technology might be a standard for PVC pressure pipes in the next 5 to 10 years according to a vinyl interest group set up in 2003; the group, called PVC4Pipes, is made up of 33 members promoting PVC pipe systems.
From a stabilization viewpoint, there is a clear trend toward calcium/zinc or organic-based stabilizers, even if some discrepancies exist between Northern and Southern Europe. Lead stabilizers should be voluntarily substituted by converters within the next few years, taking into account the possibilities for end-of-life product recycling. The Vinyl 2010 commitment set up a framework for this move, fixing a target of 15% less heavy metal stabilizer use by 2005 (which has already been achieved) and 50% less by 2010.
The film market, for rigid and soft PVC, grew just 1% between 2003 and 2004. This trend was lead by shrink films and pharmaceutical blisters. The good printability offered by PVC makes it the first choice of many converters and designers, especially for tarpaulins for building advertisements and decorative laminates, where "satin" touch has recently been introduced to improve the haptics of furniture.
The total cable sector in Europe lost market share, down almost .4% in 2004, but still grew in Central and Eastern Europe. Interpolymer competition has resulted since polyethylene (PE) producers started promoting halogen-free fire retardant products, which are seen as an innovation by some cables manufacturers, although the cash cost is higher than PVC. The European standardization committees are now working on hot issues like toxicity of smoke, which is a critical point, but without forgetting the resistance to fire and the spread of fire, where PE-based compounds apparently do not outperform.
The emulsion PVC market in 2004 exhibited a similar trend, with suspension PVC accounting for 600,000 tonnes in Europe. Moderate capacity increases have been announced by two western players, mostly as an answer to eastern growth. Exports to North America from Europe also increased. Paste PVC, dedicated to very technical markets like flooring (250,000 tonnes in PVC cushion vinyl), eroded slightly in Western Europe, but boomed in Central and Eastern Europe by more than 25% in 2004.
Environmental issues have been professionally addressed by the vinyl industry since the 1990s and PVC producers, processors, and additives makers have committed themselves to the Vinyl 2010 voluntary agreement. Recycling technologies have grown throughout Europe, such as the Vinyloop process, dedicated to composites containing PVC, and the Stigsnaes recycling technology, which recently came onstream in Denmark. Some issues regarding phthalates have been cleared up and helped define the status of plasticizers. PVC additives suppliers are also focusing mainly on alternatives to lead stabilizers.
If we evaluate the landscape of Western Europe PVC producers, we see some concentration, which occurred during the last five years, reducing the number of players. The scene is different in Eastern Europe, as there is a scattering of small- to medium-sized players.
Richard Thommeret, marketing manager, Solvin [email protected]
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