Trends in World PVC Industry Expansion

A Greenpeace White Paper

June 19, 1998

Joel A. Tickner

 

The polyvinyl chloride plastic (PVC) industry is growing worldwide despite growing concerns about the environmental impacts of its production, use, and disposal.  This white paper provides an analysis of trends in PVC industry expansions over the past couple of years and into the next century.[1]  It focuses primarily on production of the PVC feedstock vinyl chloride monomer (VCM) and PVC itself.  Trends in ethylene dichloride (another PVC feedstock) production will be only briefly discussed.  This paper will examine the current geographic distribution and capacity of PVC production, forecasts for the years 2001-2002, actual and planned expansions, and factors influencing the industryÕs growth.   It is important to note that there is a distinction between projected industry growth and projected expansions, those these two are linked.  Projected expansions will depend on industry growth, not vice versa.  If industry growth does not occur or if it is fulfilled by other plastics, then expansions will be less likely to occur.

 

This paper was developed to address the magnitude of projected expansions in the PVC industry and place them in the context of growing concern about the hazards of PVC production, use and disposal.  The fight over ShintechÕs proposed 1.1 billion lb. integrated PVC production facility in Convent, Louisiana and its worldwide implications in terms of disproportionate impacts on minority and low income communities and its links to initiatives to phase out PVC in the U.S. and Europe provides a backdrop for this discussion.   If the Shintech project does not go ahead, this could have large implications for other PVC expansions throughout the world.  Other Greenpeace research has addressed the looming waste crisis posed by PVC and its lack of recyclability as well as the links between PVC lifecycle and the creation of dioxin.[2]  Industry expansion could thus exacerbate the scale of these PVC lifecycle impacts in the future.

 

I.          Why focus on PVC production expansions?

 

The consumer market for PVC products is growing considerably in the third world while growth in Europe and North America is levelling or decreasing.  As a result of its growth, the industry will need to expand its production capacity to meet growing demand, although currently there is more capacity than demand in some markets.  To do this the industry will either increase capacity at current facilities (likely a cheaper option for most firms if they have expansion space) or construct new capacity.  New capacity may be a useful option for firms trying to enter growing markets for PVC, such as Asia and Latin America.  Since a normal chemical producing facility has a useful life of somewhere between 30 and 50 years, the introduction of new VCM or PVC capacity will ensure its continued production, at least until the facility investment is sufficiently amortized.

 

II.        Overview of past, current, and future capacity in the PVC industry

 

This section examines current and future capacity in the PVC, ethylene dichloride (EDC), and vinyl chloride monomer (VCM) industries by region.  The largest producers of VCM and PVC worldwide are also noted as well as current producers in both Europe and the United States. 

 

Polyvinyl Chloride (PVC)

 

Polyvinyl chloride plastics are the second largest class of theromoplastics in the world, after the polyethylenes.  Global PVC production capacity amounted to approximately 26 million metric tons (57 billion lbs.) in 1997 and is expected to increase by approximately 5.5% per year through the year 2002.  Thus, world PVC production capacity is expected to reach 34 million metric tons (75 billion lbs.) by the year 2002. [3]   From 1992 to 1997, PVC production capacity rose an average of 2% per year, actually going down in Europe.  Regions of greatest PVC capacity growth into the next millennium include Asia, Eastern Europe, the Middle East, and South/Central America.  Per capita PVC consumption in these areas is in the range of 2 kg compared to 6-8 kg in North America, Western Europe and Japan.  These three countries/regions account for approximately 60% of PVC production.  To satisfy quickly growing demand in Asia, Latin America and Eastern Europe, mainly due to large investments in construction and infrastructure, 3.4 million metric tons of capacity are expected to be added in developing countries by 2001.  Capacity in Asia (except for Japan) is expected to almost double by the year 2002.

 

Table 1:  Regional PVC Capacity[4] and Expected Expansions (in thousands of metric tons per year)

Region

1992

1997

2002

Avg. Annual growth %

North America

5210 (only U.S.)

7730

9350

4

Western Europe

6335

6185

6320

0.5

Japan

2375

2772

2772

0

Other Asia

 

5755

10150

12

Other regions

9620 (all other regions)

 

 

 

     Africa

 

370

370

0

     Middle East

 

940

1095

3

     South America

 

1240

1550

4.5

     Eastern Europe

 

840

2380

23

     Oceania

 

200

200

0

Total

23540

26032

34187

5.5

(Source:  SRI International)

 

PVC is currently produced by approximately 150 companies in 50 countries (see Appendix 1, Table 2 for a breakdown by country).  Table 3 shows that PVC production is highly concentrated in a few large companies, with the top 10 PVC producing companies amounting for more than 40% of global capacity.  Formosa Plastics (Taiwan) accounts for approximately 8% of global PVC production capacity.  Operating rates (actual production/capacity) range from 90% in North America to 70% in other regions.  With the exception of Shin-Etsu (Shintech), all of the largest PVC producers have captive sources of VCM (Shin-Etsu purchases theirs from Dow, though the proposed Shintech plant in Louisiana would have a captive source of chlorine and VCM). 

 

Tables 4 and 5 present PVC manufacturers in the U.S. and Western Europe, respectively.  Four companies (Formosa, Shintech, Occidental, and Geon) make up 62% of total PVC capacity.  Six PVC producers in the U.S. (CertainTeed, Colorite, Kaneka, Keysor-Century, Shintech, and Union Carbide) do not have captive sources of VCM.  They represent 26% of total PVC capacity.  More than 50% of PVC capacity in the U.S. is under foreign ownership.  This is likely an indication that production in the U.S. is less expensive than in other regions, due to low energy costs and available transport routes, and raw materials are more readily available.[5]  Domestic sales make up approximately 88% of total U.S. PVC sales. 

 

Approximately 10.9 billion lbs of PVC resin were sold and used in the U.S., 1.5 billion lbs exported and 506 million lbs imported during 1996. U.S sales and use of PVC grew at an average annual rate of 5.4% during the 1986-1996 period, driven mainly by exports.  This same trend in growth can be expected over the coming five year period, where exports to developing nations will drive industry growth.

 

In Europe, Germany was the largest PVC producing country with a total annual capacity of 117 thousand metric tons, followed by France, Belgium, and Italy.  EVC was the largest European manufacturer accounting for 19% of total Western European capacity.  EVC, along with Solvay, Elf Atochem, Vinnolit, and Norsk Hydro accounted for 62% of European Capacity in 1997.  Projected expansions in Germany, the Netherlands, Norway, Portugal, Sweden, the UK will increase annual Western European PVC capacity to about 6.3 million metric tons by 2002.  Western Europe consumed approximately 5.5 million metric tons of PVC in 1996. Germany was by far the largest user, followed by Italy, France and the UK.  Sweden uses the least PVC in the region.

 

Japan has 26 PVC producing companies, which produced 2.8 million metric tons of PVC in 1997. Japan consumed some 1.9 million metric tons in 1996.  Approximately 35% of PVC made by Japanese producers in 1996 originated overseas and this percentage is expected to increase.  Asia, including Japan has the largest regional consumption of PVC.  Approximately 8 million metric tons were consumed in 1996 and it is expected that more than 10 million metric tons will be consumed by the year 2000.[6]


Table 3:  Largest PVC  producing companies (combined plant and subsidiary totals)

 

Company (country)                                                                                      Annual Capacity

                                                                                                                        as of January 1997

                                                                                                                        (thousands of metric tons)

Formosa Plastics (Taiwan)                                                                             2044

Shin-Etsu Chemical Company (Japan)                                                           1924

The Geon Company (U.S.)                                                                            1292

Solvay SA (Belgium)                                                                                      1166

EVC International (Belgium)                                                                          1145

Elf Atochem SA (France)                                                                               740

Occidental Chemical (U.S.)                                                                             726

Borden Inc. (U.S.)                                                                                           646

LG Chemical Ltd (Korea)                                                                               606

Vinnolit Kunststoff (Germany)                                                                      580

 

Total                                                                                                               10869

Percent of World Capacity                                                                          41%

(Source:  Chemical Economics Handbook, SRI International)

 

Ethylene Dichloride (EDC)

 

Ethylene dichloride, a suspect carcinogen and nervous system toxicant, is a major PVC feedstock  The production of EDC through the oxychlorination process is known to result in the formation of dioxins and other persistent organochlorine materials that end up in production waste and require final disposal. The EDC industry is directly linked to the PVC industry, which accounts for approximately 98% of total demand.[7]  The ethylene-based process accounts for approximately 94% of PVC production.[8]  Other EDC uses include the production of perchlorethylene.  Total world demand for EDC is forecast to reach 46.8 million tons by 2001.

 

Table 6:  Ethylene Dichloride Capacity and expected expansions (as of 1997)

 

Region

Capacity (in thousands of metric tons/year*)

Expansion through 2001

North America

15765

32%

South America

955

3%

Western Europe

11710

5%

Asia/Pacifica

5041

46%

Other

n/a

7%

(Source:  Chemical Week, March 12, 1997)

aJapan, 3133 mt/yr; data only includes Indonesia, Japan, South Korea, Taiwan, and Thailand

*Note:  Multiply thousands of metric tons by 2.2 to obtain millions of pounds

 

[Japan breakdown?]

 

Vinyl Chloride Monomer (VCM)

 

Vinyl chloride monomer is the direct precursor to PVC.  As the production processes are linked, it is generally produced in integrated facilities along with the EDC.  It is a colorless gas and a known human carcinogen.  About 99% of VCM is polymerized (individual monomer units linked) through various processes into PVC.  Other uses for VCM include the production of polyvinylidene chloride (PVDC), a plastic used in packaging, and as an intermediate in the production of 1,1,1-trichloroethane.  In 1996 an estimated 22 million metric tons (48.5 billion lbs.) of PVC were produced worldwide requiring 22.5 million metric tons (49.6 billion lbs.) of VCM.[9]  VCM capacity is expected to expand approximately 5% annually until the year 2001, depending on the health of the industry, the economy, and variations in regions.  The areas of greatest growth in the industry include Asia (excluding Japan), Latin America, and the Middle East.  It is estimated that Asia will account for more than one-third of VCM demand by 2001.  According to SRI International, the only region expected to see a decrease in capacity by 2001 is Japan.  The growth in capacity worldwide between 1992 and 1996 was approximately 3% per year.  Thus, growth in the VCM industry is projected to increase considerably in the next four years.  However, growth rates for other plastics, particularly the polyolefins are expected to be even greater than those for PVC.[10]

 

Operating rates varied from region to region with North America having the highest utilization rate at 92% and Eastern Europe, Latin America, and the Middle East only utiing about 70% of capacity.

 

Table 7:  VCM capacity and production trends (in thousand metric tonnes)

Region

North Am.a

W. Europe

Japan

Other Asia b

Otherc

Total

Annual Capacity, 1992

6540

6315

2485

 

7860

(rest of world)

23200

Annual Capacity, 1996

8027

6420

3189

4236

4461

26333

Operating rate 1996

92%

89%

88%

91%

70%

87%

Actual Consumption

1996d

6723

5266

2486

4877

3462

22814

Regional Avg. Growth 1996-2001 (%)

4.0

2.0

-0.5

9.5

6.5

5.0

 

 

 

 

 

 

 

(Source:  Chemical Economics Handbook, SRI International)

a Includes the U.S, Canada and Mexico

b Includes the PeopleÕs Republic of China, Hong Kong, India, Indonesia, Reputlibc of Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand

c Includes South and Central America, Eastern Europe, Africa, Middle East, and Oceania

d Utilization less exports.

 

The following tables provide a better understanding of the concentration of the industry, which companies dominate the market for VCM production, and the relative sizes facilities in the U.S. and Europe.  Table 8 shows that a relatively small number of companies dominate VCM production in the world.  For example, Dow represents about 10% of global VCM capacity.  This concentration of production is likely to increase with the large percentage of mergers and joint ventures planned during the coming years, as will be discussed following sections of this report.  Tables 9 and 10 (see Appendix. C) demonstrate that there are far fewer VCM production facilities in the U.S. than in Europe, and that those in Europe are on average much smaller than similar than facilities in the U.S.  Similarly, in Japan there are twelve VCM production facilities, though capacity is less than one-half that of the United States.

 

In the United States, three VCM producers (Dow, Oxymar, and PHH monomers) represent approximately one-third of total VCM capacity.  The US imports only negligible amounts of VCM, and  it exports more than 1.5 billion pounds per year.  While exports have risen since 1990, they will likely come down by the end of the century as capacity grows in other regions.  Approximately 90% of U.S. VCM exports go to Canada and Mexico, South and Central America, and Asia.  U.S VCM capacity is expected to reach 17.6 billion lbs. by the year 2001; however, this figure will depend on the outcome of the fight to stop ShintechÕs proposed Convent, Louisiana facility. 

 

In Europe, three companies (EVC, Solvay, and Elf-Atochem) account for almost 50% of VCM capacity.  VCM capacity in Europe is expected to grow slower than in other regions (about 2%) reaching a total capacity of 7 million metric tons by the year 2001.  Belgium, France, Germany, the Netherlands, and Italy are to be the largest VCM producing countries in the region.

 

Table 8:  Largest VCM producing companies (combined plant and subsidiary totals)

 

Name (Parent company country)                                              Annual capacity as of Jan. 1997

                                                                                                      (in thousands of metric tons)

Dow Chemical Company (U.S.)                                                      1906

Formosa Plastics (Taiwan)                                                             1643

EVC (Netherlands)*                                                                       1370

Solvay, SA (Belgium)                                                                     1193

The Geon Company (U.S.)                                                             1088

Occidental Chemical Corp. (U.S.)                                                   1020

Elf-Atochem SA (France)                                                              803

Georgia Gulf Corp (U.S.)                                                                726

Norsk Hydro a.s. (Norway)                                                            595

Tosoli Corporation (Japan)                                                            570

Total                                                                                             10914

Percent of World Capacity                                                        42%

 

*Note:  EVC has its administrative headquarters in the Netherlands but is not a Dutch company

(Source:  Chemical Economics Handbook, SRI International)

 

 

III. Update on PVC industry expansions

 

This section presents a listing of actual and proposed PVC industry expansions throughout the world (see appendix 4 for a listing of specific expansions).  These expansions have been identified through a review of the trade press from 1996 to the present.[11]  Nonetheless, the list supports the overview on expansions provided in the previous section, as well as the general trends in the industry, discussed in the next section. 

 

In general, the largest concentration of expansions observed through a review of the trade press are in Asia (Pakistan, Malaysia, Thailand, and China), Latin America (Brasil and Argentina), the Middle East, and the United States.  Expansions in both VCM and PVC production are occurring widely; however, few EDC or chlorine expansions were identified, a possible indication that the chlorine industry is shifting greater amounts of production to PVC production.  An analysis of the various expansions indicates that many multi-company joint ventures with new names are being initiated.

 

In terms of size, the vast majority of new expansions, both VCM and PVC are less than 200,000 metric tons per year.  Only four of the expansions identified are larger than 300,000 metric tons per year.  The proposed Shintech facility in Convent, Louisiana is the largest of the planned expansions at 500,000 metric tons of VCM and 400,000 metric tons of PVC projected per year.

 

IV. Trends in PVC industry expansions 

 

Based on the information provided in the previous sections and other trade publications, this section provides an analysis of trends in PVC industry expansion and those factors influencing expansion.  Many of these issues were discussed in previous sections and will be summarized here.  In general, trends and issues concerning PVC industry expansion can be divided into the following categories:

 

á      Product distribution, product market growth, and impacts of deselection

á      Factors influencing industry growth

á      Factors influencing location of expansions

á      Impacts of the Asian economic crisis

á      Production/product integration

 

Product distribution, product market growth and impacts of deselection

 

Fluctuations in the market for virgin PVC are heavily influenced by fluctuations in the market for its various end-products.  PVC use in various markets is distributed as follows:

 

Table 12:  Distribution of PVC Uses in the United States

Market                                           Percentage

 

Construction                                    64

     Pipe and Tubing            38

     Siding                            12

     Windows/Doors             3

     Other Construction       11

Packaging                                        6

Consumer Goods**                          6

Electrical (inc. cables)                      4

Transportation***                          2

Home Furnishings                            2

Other****                                       4

Exports                                           12

 

*Other Construction:  flooring, wall coverings, roofing membranes, gutters, fencing.

**Consumer Goods:  blinds, toys, clothing, appliances, credit cards, tapes.

***Transportation:  auto undercoating, dashboards, floor mats

****Other:  Medical devices, poor liners

(Source:  Chemical Economics Handbook, SRI International)

 

By far, fluctuations in the construction market, making up some 70% of overall PVC use, will have the greatest impact on overall PVC demand. The most important factor influencing this demand are housing starts - including new construction and renovations.[12]   In the developing world, the industry is hedging its growth on its ability to market products to fill the need for low-cost housing and development of infrastructure.  Building codes, requiring specific fire retardancy or properties, may also heavily influence the use of PVC in the construction sector.  However, increasing concern over the fire hazards of PVC will possibly lead to changes in building codes and support the introduction of alternative materials.  The declining number of skilled carpenters coupled with increases in labor costs and increased costs for lumber are likely to also drive increases in the demand for PVC and other plastic materials.  PVC is considered by contractors and architects to be inexpensive, durable, and easy to install and care for.  Its environmental and health impacts are relatively unknown to these groups.[13]  PVC pipe use is expected to continue growing as older infrastructure is replaced, though this may be influenced by several notable failures [need cite from KS].  Sales of PVC siding and windows are expected to increase by upwards of 8-10% per year through the year 2001 in the U.S. [do we cut/edit some of this to make it seem less like PVC is doing so well.]

 

In coming years, metallocene catalyzed polyolefins will enter the market for flexible PVC products.  This new generation of polyolefins can be tailored to specific flexible applications, often using the same processing machinery as PVC.  Some of the possible areas for metallocene replacement include:  medical devices, packaging, wire and cable insulation, flooring, membranes, and auto components.  However, these together only account for 16% of total PVC.[14]  Analysts feel that any market lost by to metallocene polyolefins may be made up by new rigid PVC applications.  Other polymers, such as polyethylene, polypropylene and thermoplastic elastomers, will likely also impact PVC markets, for packaging, medical devices, and other flexible applications. Even some rigid PVC markets are suffering from competition (and will possibly lose more market share in coming years) due to the infusion competitively priced polyolefins (such as polyethylene in pipes) and other non-plastic materials, such as wood and clay.

 

The impact on PVC markets due to growing recognition of PVCÕs environmentally-unfriendly lifecycle is unclear but potentially very important  Environmental concerns over the PVC lifecycle are a constant issue discussed in trade journals and in market reports such as the Chemical Economics Handbook.  There is growing concern over PVC in toys, medical devices, and packaging because of the environmental and health impacts of the polymer and its additives; however the majority of PVC use is in the construction sector.  Nonetheless, deselection in the construction sector is happening in a growing number of towns and regions in Europe.

 

Factors influencing industry growth

 

There are several critical factors that are currently influencing industry growth:  First, as previously noted, economic growth leading to construction and infrastructure development likely drive the largest percentage of PVC demand.[15]  Growth in PVC (and other plastics) consumption has been correlated to economic growth in the developing world.  Given the energy intensive nature of chlorine production, energy and petroleum prices will also have a substantial impact on PVC industry growth.  An overcapacity of PVC during recent and coming years, due to large expansions throughout the world (not compensated for by increases in demand), will possibly result in a decrease in operating rates and industry growth and a decrease in virgin material prices.[16]  This is important because there are likely to be few markets for recycled material given the low price of virgin material, as is currently the case (so production waste and end of life products will need to be landfilled or incinerated.  Finally, production of PVC feedstocks in Europe may decrease in coming years due to declining profit margins and as mercury cell chlorine production is slowly phased out.  This may result in European manufacturers attempting to establish new facilities in Asia, the Middle East, and Latin America.

 

Factors influencing location of expansions

 

The four most important factors influencing the location of PVC expansions are:  energy prices, availability of raw materials, market for caustic (a co-product of chlorine production), and increasing demand (or market potential) for PVC products.  These factors indicate that the areas of greatest expansion of PVC feedstock production will likely be the Middle East, Latin America (Brasil and possibly Argentina), and the United States - all of which have both readily available raw materials and relatively inexpensive energy sources (the U.S. has the lowest energy prices).  Given high energy prices and undependable energy sources in Asia, coupled with a lack of markets for caustic, PVC polymerization, rather than feedstock production facilities (though less energy intensive VCM production could occur) are more likely to be located in that region in the near future.[17]  This factor (essentially a chlorine deficit) makes Asian expansion highly dependent on both EDC and VCM prices and availability.  VCM and PVC expansions in the region will be based primarily on imported raw materials.  High EDC prices will result in a reduction in PVC production.  Thus, EDC production could be considered a weak link in the PVC expansion chain.  A limited market for caustic will also limit chlor-alkalai production in Asia; though as PVC is by far the largest factor driving chlorine industry growth, the PVC industry may place less concern on availability of caustic markets.

 

Growth in infrastructure, construction, and industries such as the electronic industry are important factors driving the PVC industryÕs expansion into Asia.  The PVC industry is attempting to create a large market niche in this region, especially China and India, due to the large increase in demand for housing and consumer goods.  A similar situation exists in Latin America (the 18% growth in PVC consumption in Brasil in 1996 was driven primarily by infrastructure investments).  Also, Asian and Latin American countries represent inexpensive manufacturing centers for PVC and other products, given low labor costs and free trade benefits.  However, labor costs should not be much of a factor with regards to feedstock expansions, as they represent only about 4-5% of overall production costs.[18]  Internal PVC consumption, along with increased export market growth will fuel industry growth in the United States in coming years.

 

Impacts of the Asian economic crisis

 

One of the most important factors potentially impacting PVC industry expansion in the coming years is the recent Asian economic crisis.  As a result of the crisis (resulting a giant decline in construction), demand for PVC will come down, and due to unstable currencies it will be difficult for Asian countries to import needed EDC.  This resulted in a 10% decrease in operating rates for PVC manufacturers in the region last January and this decrease is expected to continue.[19]  Anticipated PVC growth rates of 10+% per year have been downgraded by some analysts to 4-5%. The need for hard currency will also drive countries in the region to reorient production towards export markets (increased PVC consumption in China may help reverse declining trends).  Though exact information for the PVC industry is not available, the Asian economic crisis has resulted in multiple project cancellations and plant closures (or substantial reductions in capacity) in the region and delays in foreign investment until 2001-2003.  The Asian economic crisis will likely have some indirect impacts on PVC expansions (and closures in regions such as Japan) in other regions as demand for EDC and VCM feedstocks to this largest future PVC consuming region in the world will be reduced considerably.

 

Production/product integration

 

To avoid fluctuations in feedstock prices and supply, many manufacturers in the U.S. and Europe are undertaking joint ventures or other types of marketing linkages to ensure captive feedstock supplies.  There is also an increasing trend towards integrated facilities (such as Shintech) in areas where chlor-alkalai production is profitable.  This will result in larger, multi-owner facilities, especially in feedstock production, consolidating the number of these facilities in the world.  This consolidation will result in a competitive advantage for companies.  As a result, smaller, less cost-effective companies and facilities will likely be phased-out.  Another trend is that PVC manufacturers are becoming more apt to produce and market final products (the most value added part of the production process).  Integrating raw material and product production offers greater market control (upstream and downstream) and protection in the face of fluctuations in demand.