BUSINESS
Demand for Polyvinyl Chloride Outstrips Supply Producers are limiting sales, increasing prices, reducing inventories, and moving to expand capacity for plastic to meet future demand Bruce F. Greek, C&EN Houston
Demand for polyvinyl chloride in the U.S. and other countries currently is exceeding supply. This situation is causing rapid increases in selling prices, further expansions of capacity, and more reduction of inventories. As a result, "sales control" and "allocation'7 again are coming up in PVC marketing meetings. Producers could very well sell more of this widely used plastic than their plants currently can make. Demand for PVC has strengthened steadily since the first half of 1985. Last year demand was more than 7.4 billion lb, but production was only 7.3 billion lb, up from 6.8
Production of PVC to hit record high this year Billions of lb 8
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1977 78 79 80 81 82 83 84 85 86 87a a C&EN estimate. Source: Committee on Resin Statistics of the Society of the Plastics Industry
billion lb in 1985. This year consumption, including exports, will exceed 8.0 billion lb, and production will top 7.9 billion lb. For 1988, both demand and production likely will continue to grow, but at smaller rates in the 2 to 4% range. For production, capacity will not be available to allow a 7 to 8% growth rate, even with some additional capacity resulting from debottlenecking programs. For demand, a major slowdown in construction may reduce use of PVC next year. Slower general economic growth also might reduce the many nonconstruction uses of PVC. But even if economic conditions hold down growth in PVC demand, production might grow 2 to 4% as producers build back their depleted inventories. Debottlenecking will effectively add 200 million to 300 million lb of PVC capacity in 1988, the major part of the total expected capacity expansions of 400 million lb during the year. Total nameplate capacity for the 13 PVC producers will be about 8.9 billion lb early in 1988. At the beginning of 1989, producers will have about 9.3 billion lb of capacity. For comparison, in 1980 20 producers operated about 7.1 billion lb of nameplate capacity. Although their ranks thinned after the 1982 recession, those remaining in PVC (albeit with several new corporate names) added to capacity and now are reaping returns on investments made during those difficult times. Debottlenecking also is continuing at vinyl chloride plants. To meet demands for PVC production, operators of vinyl chloride units, whether for captive consumption or merchant sale, pushed their capacity to close to nameplate this year. At the beginning of 1987, vinyl chloride
Largest application for PVC by far is rigid pipe and fittings capacity was about 8.5 billion lb, with small additions estimated by industry sources to total 300 million lb by the end of the year. About 8.1 billion lb of vinyl chloride will be needed to produce 7.9 billion lb of PVC. If the industry's estimates prove accurate, the monomer units will have an average operating rate of more than 93% (with the debottlenecking additions providing 150 million lb of additional vinyl chloride during the year). No major new vinyl chloride expansions have been announced, but additional debottlenecking of vinyl chloride plants during 1988 is expected to meet the additional demands of PVC producers and any reduction in exports could be diverted to U.S. polymer producers. As supplies of PVC, vinyl chloride, and the raw materials of chlorine and ethylene have tightened, round after round of price increases have occurred this year as producers of these materials attempted to December 14, 1987 C&EN
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Business pass on their cost increases. Prices of pipe-grade PVC reached 38 cents per lb at the beginning of the fourth quarter, up 10 cents per lb from a year earlier. Vinyl chloride prices also are up about 10 cents per lb, and both ethylene and chlorine selling prices rose even more, about 50%. High as the current prices are, they still are well below levels that must be sustained to justify a worldscale new plant, according to industry sources. PVC supply is tight because demand growth has continued to exceed capacity growth, whereas supply tightness in other materials (such as ductile iron) has stemmed from reductions in capacity when demand slumped in the early 1980s. PVC demand has stemmed partly from programs to spur its use, but it particularly has done well in construction (such as in various kinds of pipe and siding for houses). PVC producers had underestimated how great their success would be in programs designed to expand PVC use, especially in construction, says one industry source. To cover those unexpected demands as practical capacity of existing plants was reached, producers drew down their inventories of resins. That drawdown has been under way for more than two years. It accelerated in 1987, and exceeded in the first nine months of the year the total inventory drawdown in all of 1986. Based on differences between the
volume of production and the volume of sales and captive use, as reported by the Committee on Resin Statistics of the Society of the Plastics Industry, the inventory drawdown in 1986 was 129 million lb. Sales and use exceeded production by that amount. From January through September of 1987, the inventory drawdown, calculated on this basis, was more than 150 million lb. On this basis, PVC inventories in less than two years have dropped about 280 million lb. The preliminary estimate of PVC production in September 1987 was 660 million lb, according to SPI. That level of production (about 22 million lb per day) represents lowered inventories equivalent to more than 12 days' production. In many months of 1986 and early 1987, however, production was 10 to 20% below the level of September 1987, indicating that the inventory reduction of PVC in terms of days over the past one and three fourths years has been higher, probably in the range of 15 days' production. Industry sources confirm that producers' inventories of PVC are very low. Estimates of the inventory now range from 5 to 10 days' production. Producers have a better supply of certain grades, depending on particular sales demand. No grades of PVC are at levels as high as at the beginning of 1987. During the third quarter, low inventories caused most producers to go to sales con-
Inventories of PVC are down since early 1986 as production lags sales and captive use Apparent inventory change, millions of lba
40 30 20 10 0 -10 -20 -30 -40 -50 -60 -70
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a Difference between production and sales and captive use. A positive number means that production exceeded sales and captive use for the month. Source: Committee on Resin Statistics of the Society of the Plastics Industry
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December 14, 1987 C&EN
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trols or to some other form of limitation on new business. Relief from the current situation of sales limitation will come if construction demands for PVC level off. A decline in use in making pipe during September suggests that demand could weaken. By far the largest construction use of PVC (and of all uses) is rigid pipe and fittings. More than 2.6 billion lb of PVC went into pipe and fittings during the first nine months of 1987, more than 46% of total U.S. PVC consumption. In September 1987, PVC use in rigid pipe and tubing, excluding fittings, fell more than 10% for the first significant monthly decline this year. Other construction uses of PVC, however, are continuing to grow rapidly, as a result of technological developments. For example, producers of vinyl siding now put a "cap" or layer of PVC containing highcost chemical stabilizers against ultraviolet light over the basic siding structure. The cap improves life of the siding and permits manufacture of siding in many more colors than were available a few years ago. This technology is behind a growth of almost 20% so far this year in consumption of PVC in siding and siding accessories. In nonconstruction uses of PVC, the declining value of the U.S. dollar is spurring U.S. PVC demand in such fabricated end products as shoes, clothing and accessories, toys, and other consumer products. Imports of those kinds of fabricated products either are declining or are holding level because of the lower value of the dollar. Expanding demand is being supplied more by U.S. fabricators, and less by imports. Foreign fabricators of PVC are not especially concerned, h o w e v e r , about a leveling off in sales to U.S. consumers. They are selling to markets other than the U.S. and are continuing to buy PVC from U.S. producers. Exports of PVC through September are up almost 27% over the same period of 1986 to 329 million lb. Despite the much higher prices for PVC, exports have increased because the U.S. producers have more supply than do foreign sources who also have tight supplies. •
