BUSINESS
Polyvinyl Chloride Market Is Showing Some Signs of Recovery • Producers are working to maintain operating rates in face of new capacity and seasonal slowdown Susan J. Ainsworth, C&EN Houston
B
uffeted by the recessionary climate, demand in many plastics markets has been less than spectacular during the past year or so. The weak economy has had a particularly brutal effect on polyvinyl chloride (PVC), which is strongly tied to the consumer-oriented housing business. Demand in the past few quarters has been sluggish, especially from thirdquarter 1991 to early 1992. But a glimmer of recovery in the economy seems to have sparked a turnaround. During the past three to four months, demand for PVC has been very strong. In response, producers have been running their plants nearly full-out, setting production records in March and April. "Utilization rates are well up into the 90% range, whereas at this time last year they were hovering around 80%," says J. Alan Bailey, executive vice president of polymers and plastics for Dallas-based Occidental Chemical. "PVC has made a strong recovery and has rebounded from where it was a year ago." In addition, PVC producers have been able to sustain a very high level of exports, which also buoyed operating rates. Still, PVC producers are far from putting all their troubles behind them. To date, the PVC market has not remained strong for 12 consecutive months and this year is likely to be no exception. Consistent with the annual construction cycle, which dictates a lull in PVC consumption in summer and winter, domestic demand is expected to wane at least until August, after
which demand may return to the high levels of early 1992. But operating rates during the summer may drop to 85% or so, predicts David Maxson, manager of chemical planning at Houston-based Bonner & Moore Market Consultants. And just when they begin to pick up, more capacity will crowd the market. In October, Shintech, the U.S. arm of Japan's Shin-Etsu, plans to start up 375 million lb of annual capacity, increasing the company's total capacity at Freeport, Tex., to 2.4 billion lb per year (C&EN, June 29, page 10). In addition, Shintech's wholly owned rigid-PVC compounding subsidiary, K-Bin, will double its manufacturing capacity, adding 100 million lb of additional capacity by the end of this year. Even while Shintech's internal demand grows with the K-Bin expansion, Maxson does not expect Shintech PVC capacity to be easily absorbed by the U.S. PVC industry. Rather, he predicts the new capacity probably will bring domestic operating rates down another 3 to 4% across the U.S. Longer term, some in the industry question whether PVCs advantages of versatility and cost effectiveness will protect it from replacement by resins that are viewed as more environmentally friendly. Led by its trade association, the Vinyl Institute, the industry continues to work to address these issues before they can have a significant impact on virgin resin consumption. To be sure, the rebound in the market is a welcome change for all U.S. producers of PVC. As Maxson sees it, the boost in PVC demand results from two factors. First, the number of housing starts is increas-
ing as the economy attempts a recovery. This is particularly significant considering the largest domestic market for PVC continues to be pipe and tubing used in the construction industry, which accounts for 40% of domestic sales. The second factor increasing consumption is that downstream PVC processors began replenishing their inventories after letting them run down during the slow months of the past couple of quarters. The same construction cycle that helped elevate PVC demand levels is the culprit behind the anticipated summer slowdown. The construction sector has not remained so strong as it first appeared to be when housing starts
Polyvinyl Monde resins are used infloonng (above) and siding (nght) JULY 13,1992 C&EN
15
BUSINESS
jumped 8 to 12% earlier this year. In fact, the drop in the growth rates for housing starts was already evident in April construction numbers. "We've begun to see general construction activity slow down. Weakening demand for lumber, studs, and plywood, which go into structures before PVC components such as pipe and siding, signals that demand for PVC in this end-use market will likely also turn sluggish," Maxson notes. The construction cycle could bring demand back up some time between August and November. That's when PVC producers typically gear up to meet strong demand by processors who, in turn, are poised to meet February and March demand for PVC used in construction. Given this, Maxson thinks that by the fourth quarter of this year, PVC demand possibly could return to the celebrated levels of firstquarter 1992. But U.S. producers cannot count on capitalizing on this demand upswing. Shintech is well-positioned to supply any incremental demand with the material it will be able to crank out in October. Shintech claims its PVC process, which has been steadily improved since it was developed in 1969, has a matchless cost-price advantage. Having a low-cost process can make or break PVC producers in today's market. OxyChem's Bailey notes: "The market has become extremely competitive and I think that if you expect to make a reasonable return on your investment you'd better drive your costs down as low as you possibly can." With the additional capacity that came on stream between 1990 and 1992, he says, and weak demand from the recession, "the supply and demand balance is not what it was three years ago and pricing is not where we'd like to see it to justify reinvestment. So the only other place to attack is cost." Faced with these cost pressures, some older, less efficient plants are bowing out of the market. Last December, Goodrich announced that within the next two years it will phase out high-cost vinyl manufacturing operations at plants in Avon Lake, Ohio; Henry, 111.; and Plaquemine, La. The per-pound production cost at these three operations is about 40% higher than the cost at the company's remaining facilities, notes Goodrich chairman John D. Ong. The vinyl resin production lines being phased 16
JULY 13,1992 C&EN
out represent about 530 million lb per year, which is nearly 25% of the company's resin manufacturing capacity in North America. However, it is not likely that other producers will follow the Goodrich lead by closing higher cost plants. One reason: "There's really not a significant enough overcapacity out there to warrant those moves," says Maxson. Rather than close plants, companies may be more apt to upgrade them. For example, last December OxyChem announced that it is spending $14 million to improve efficiency at its Pasadena, Tex., facility. The project, slated for completion in mid-1993, is also designed to improve product quality, mix, and overall performance. According to J. Roger Hirl, president and chief executive officer of OxyChem: "We now believe the time is right to proceed with this project in light of improved capacity utilization rates coupled with the outlook for continued growth in PVC markets." Indeed, those in the industry do see modest growth potential for PVC. Whereas Maxson pegs growth at 3 to 4% per year, Shintech is more sanguine with estimates of 4 to 5% per year. In addition, profit margins have improved from the miserable levels of last winter. Although pricing is still not high enough to satisfy producers, they were able to push through a 3-cent-perlb increase between March and June. "That helped margins return to respectable levels," notes Maxson. Another factor helping producers survive is the strong export market. According to data from the Society of the Plastics Industry's Committee on Resin Statistics, 1991 exports of PVC totaled 1.53 billion lb, up almost 62% from a year earlier, and accounted for nearly 17% of all PVC shipments. Firstquarter exports were very healthy, too—on a par with 1991, Maxson says. One reason exports rose is that much of the extra capacity, which was built during the past 18 months, was shipped out of the U.S., he explains. Exports are likely to remain high. Shintech, for one, has earmarked some of its new capacity for export. And Maxson thinks other companies may export more PVC because the U.S. market probably won't be able to support the extra pounds of product brought onto the market by Shintech. "Historically, PVC producers have continued to run at
high rates and export the excess rather than lowering operating rates," says Maxson. Companies that are integrated back into chlorine, such as OxyChem and Goodrich, are most apt to run plants at higher rates to get rid of excess captive chlorine, he points out. Despite strong exports and recovering demand, few, if any, observers see any major PVC expansions on the horizon. It will be a while before the market can soak up the capacity started up during the past two years. However, incremental expansions are not out of the question. For example, OxyChem's Bailey says that in the course of its efficiency improvement project at Pasadena, it will add a "nominal" 100 million lb to its nameplate capacity there. Likewise, William F. Patient, president of the Geon Vinyl Division of Goodrich, notes: "We have the ability to increase low-cost vinyl resin capacity through incremental expansions of existing plants. We will consider taking advantage of that opportunity when conditions are right." When producers are thinking about building new capacity, they are undoubtedly factoring in how public environmental concerns about PVC will affect future demand. The real effects of environmental constraints on PVC resin manufacturers, compounders, processors, and users will be evident from 1996 through the beginning of the next century, according to a study, "PVC and the Environment: Resin Replacement Opportunities," recently released by Business Communications Co. (BCC), a Norwalk, Conn.-based consulting firm. "While other plastics such as [polyethylene terephthalate], high-density polyethylene, and expandable polystyrene have progressed with the development of recycling infrastructures— that is, collection, sorting, reprocessing, and market development—the PVC industry has not yet achieved a level of recycling equal to its competitors," says the study. For example, more than 200 million lb of PET is recycled annually, and more than 50 million lb of HDPE, compared with only 5 million lb of PVC. "Consequently, processors are induced to move away from some PVC products toward PET and HDPE, materials that are perceived to contribute more in terms of higher recycling rates to the ultimate environmental objective of reduced plastics waste," the BCC study adds. By 2010, BCC predicts 25% of PVC
packaging products and 5% of all other PVC applications will be recycled, ac counting for 1 billion lb. 'The markets for bottles, rigid calendared film, labels, trays, and pipe will be affected by ei ther loss of market share due to new regulations, or the use of recyclate," BCC adds. Some in the PVC industry are taking a more optimistic view. Bailey says the re cycling issue is having no effect on vir gin resin sales currently, and "I don't an ticipate it will have a big effect in the fu ture." The area that is coming under attack is the packaging area, specifically the bottle market. "It is a small market, and if it went away completely, it would not have much effect on total demand for PVC." On the other hand, that small market is not going to disappear, because the Vinyl Institute and its member compa nies are working hard to create solu tions to address this issue, Bailey adds. Robert H. Burnett, executive director of the institute, says: "We are doing ev erything we can to help improve the
recycling infrastructure, such as help ing to fund projects that address collec tion and automated sortation." Just this past month, the institute announced an agreement with Clearvue Resource Management, Amsterdam, N.Y., to re cycle postconsumer vinyl bottle con tainers collected from municipal recy cling programs nationwide. Clearvue's primary customers in this program in clude Vinyl Institute members OxyChem, Goodrich, and Georgia-Gulf, which buy cleaned recycled PVC flake. Burnett concedes that recycling of PVC is not to the level "where we want it to be," but the Clearvue operation and "a couple of others that we can't disclose at this point" will further build an infrastructure. Bailey, too, is confi dent the industry can tackle this poten tial problem. "I believe the packaging market will be retained and there won't be any significant negative fall out in other areas outside the packag ing market because we will also ad dress those issues in turn as they come
along."
Π
Environment plan for East Europe starts up A plan devised by the European Chem ical Industry Council, CEFIC, to transfer environmental and energy-saving tech nology to the chemical industry in East ern European countries is swinging into action. It's called, aptly enough, Project EASTT—Environmental Advisory Ser vice for Technology Transfer. One EASTT project has been com pleted, and another seven are in the ex ploratory stage. That's not bad for a program formally announced in March and given final approval in mid-June at CEFIC's annual meeting in Vienna. EASTT was originated by CEFIC as a measure to reduce pollution by targeting money where it will be most effective. It was a counterproposal to the carbon tax proposed by the Commission of the Eu ropean Community. Cautiously introduced in Warsaw in March, at a conference jointly sponsored
How CERAC's Certificate of Analysis Can Help Your Materials Production Process... CERAC's Certificate of Analysis gives you detailed results from the quality control checks performed on each specific produc tion lot of material you receive. We include it free with each shipment of high quality Advanced Specialty Inorganics, Sputtering Targets and Evaporation Materials. More than just a "typical" analysis, this lotspecific analysis: • Assures you of the quality of your material. • Confirms that the material meets your exact specifications. • Assists in product development and prototype refinement. • Provides documentation of lot-to-lot differences. Make CERAC's Certificate of Analysis a part of your production process. Call, fax or write for further information or for a free Advanced Specialty Inorganics catalog.
GERAC
incorporated
CERAC stocks thousands of inorganic materials for immediate delivery. Custom orders are generally shipped within four weeks.
P.O. Box 1178 · Milwaukee, Wisconsin 53201 Phone:414-289-9800 · Fax:414-289-9805
CIRCLE 12 ON READER SERVICE CARD
JULY 13,1992 C&EN
17
