Competitivity of PVC in a Low Energy Cost World

PVC Committee Meeting at APIC 2016

Singapore, 20 May 2016

Dr Charles Fryer

..your source of expert

chemical industry knowledge

OUR CORE STRENGTHS

Intermediates, Fibres & Specialty Resins
EDC

VCM

PVC
Epichlorohydrin

Soda Ash

Epoxy Resins

Isocyanates
Caustic Soda

Chlorine

Acetone

Peroxy PO
Chlorohydrin PO
Derivatives

Polyols

Bisphenol A

Polyester Film

Polyurethanes

Phenol

EODs

EO

PET Resin

MEG

Bio-Materials

Polyester Fibre
Acetic Acid
Vinyl Acetate
Monomer

PTA

Polyester
Polypropylene Fibre

Paraxylene
DMT

Caprolactam

Acrylic Fibre

Adiponitrile

HMDA

Polyamide 6

Polyamide Fibre

Adipic Acid

AH Salt

Polyamide 66

Acrylonitrile

Polyamide Resin Polyacetal

ABS & SAN

PBT

Polycarbonate

Methanol

Methyl Acrylate
Ethyl Acrylate

Isodecanol

DIDP

Orthoxylene

Isononanol

DINP

Phthalic Anhydride

1,4-Butanediol

2-PH

DPHP
Unsaturated
Polyester Resin

Maleic Anhydride

Acrylic Acid
2-Ethylhexyl Acrylate

Butyl Acrylate

2-EH

Butanols

DOP

Styrene

APIC 2016

WHAT WE WILL COVER TODAY

World consumption of PVC
World trade in PVC
Economics of production of ethylene: implications for PVC
The special position of China, the home of PVC-A
Relative competitivity of the main PVC producing regions
Economic drivers of PVC exports
Conclusions
Source: Tecnon OrbiChem

APIC 2016

WORLD CONSUMPTION OF PVC

KT
60,000
50,000

4.7%
AAG

40,000

3.5%
AAG

4.4%
AAG

-8.3%
AAG

4.1%
AAG

India
China
Rest of World
NE Asia
W Europe

30,000

S America
N America

20,000
10,000
0

2003

2007

Source: Tecnon OrbiChem

2008

2013

2015

2020

APIC 2016

PVC DEMAND PER CAPITA 2007 & 2015

2007 PVC
Demand kt

N America
S America
W Europe
E Europe
ME & Africa
S & SE Asia excl India
NE Asia
China
India
World
Source: Tecnon OrbiChem

2015 PVC
Demand kt

PVC Demand
kg per capita
2007
2015

6835
1720
6620
1265
2460
1920
2975
9800
1330

5335
2400
4975
1440
3320
2500
2500
17230
2800

15.4
3.8
14.1
4.0
2.1
2.0
13.3
7.5
1.2

9.8
5.8
9.1
5.3
2.2
2.3
11.1
12.2
2.2

35000

42500

5.3

5.8

APIC 2016

PVC DEMAND PER CAPITA 2020

2015 PVC
demand kt

N America
5335
S America
2400
W Europe
4975
E Europe
1440
ME & Africa
3320
S & SE Asia excl India
2500
NE Asia
2500
China
17230
India
2800
World
Source: Tecnon OrbiChem

42500

2020 PVC
demand kt
AAG%
2.5%
3.1%
1.6%
3.1%
4.4%
4.3%
1.3%
5.5%
6.0%

PVC Demand
kg per capita
2015
2020

6045
2800
5375
1680
4110
3080
2660
22500
3750

9.8
5.8
9.1
5.3
2.2
2.3
11.1
12.2
2.2

9.3
5.8
9.2
5.8
2.2
2.3
10
15
2.8

4.1% 52000

5.8

6.1

APIC 2016

PER CAPITA CONSUMPTION OF PVC

Kg per capita
20
18

2015

16

2010

14

2005

12
10
8
6
4
2
0
North
West
America Europe

M.E. & S.E.Asia

Africa
excl
India

Source: Tecnon OrbiChem

India

N.E.Asia China

WORLD

APIC 2016

SURPLUS CAPACITY OF PVC in 2016

Million Metric Tons
35,000
Capability
minus
Production =
Surplus
Capacity

30,000
25,000
20,000

Production

15,000

Capability =
Capacity x
0.90

10,000
5,000
0
North
West
America Europe

M.E. & S.E.Asia

Africa
excl
India

Source: Tecnon OrbiChem

India

N.E.Asia China

WORLD

APIC 2016

PVC TRADE
Thousand Metric Tons
4,000

2016
3,000

2018

2,000

2020

1,000
0
-1,000
-2,000
-3,000
-4,000
North
South
West
America America Europe

Source: Tecnon OrbiChem

East
Europe

ME &
Africa

SE Asia NE Asia

China

APIC 2016

CASH PRODUCTION COST OF ETHYLENE

Naphtha
Asia
March 2016

Dollars per Ton

2,000

from naphtha

1,800
1,600
1,400

Spot Ethylene price NE Asia March 2016

1,200

from ethane

1,000
800

Contract Ethylene price Taiwan March 2016

600
400
200

USA shale gas

Middle East

Naphtha $/ton
0

100

200

300

400

B 0

50

100

150

200

C 0

10

20

30

40

D 0

500
250
50

600
300

60

700

350
70

800

400

900

450

80

90

1000

1100

550

600

500
100

110

120

1200
650
130

1300

Heavy Fuel Oil $/ton

700
140

Crude Oil $/bbl

Natural Gas $/mmBtu

10

11

12

13

14

15

16

Ethane $/ton

E
0

100

200

Source: Tecnon OrbiChem

300

400

500

600

700

800

APIC 2016

CASH PRODUCTION COST OF ETHYLENE

Cash flow

Naphtha
Asia
March 2016

Dollars per Ton

2,000

from naphtha

1,800
1,600
1,400

Contract Ethylene price USA March 2016

1,200

from ethane

1,000
800

Contract Ethylene price Taiwan March 2016

600
400
200

USA shale gas

Middle East

Naphtha $/ton
0

100

200

300

400

B 0

50

100

150

200

C 0

10

20

30

40

D 0

500
250
50

600
300

60

700

350
70

800

400

900

450

80

90

1000

1100

550

600

500
100

110

120

1200
650
130

1300

Heavy Fuel Oil $/ton

700
140

Crude Oil $/bbl

Natural Gas $/mmBtu

10

11

12

13

14

15

16

Ethane $/ton

E
0

100

200

Source: Tecnon OrbiChem

300

400

500

600

700

800

APIC 2016

PRODUCTION COST DEPENDENCE ON CRUDE OIL

PRICES
Cash Cost Dollars per Ton
1,500

HDPE cash cost

from cash
ethylene ex
naphtha
cracker

Production cost of PVC from calcium

carbide in E China (excl VAT)

1,000

PVC cash cost

from cash
ethylene ex
naphtha
cracker plus
cash chlorine =
ECU cost 2.1

500

0
0

25

50

Crude Oil Price $/bbl

Source: Tecnon OrbiChem

75

3,600

Source: Tecnon OrbiChem

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

2,000

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

1,600

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

APIC 2016

US EXPORTS EDC, VCM and PVC 2003 - 2015

1,000 Metric Tons
PVC

3,200

2,800

2,400

VCM

EDC

1,200

800

400

APIC 2016

CHINA CHLORINE CAPACITY 2015 ktpa

Heilongjiang
Jilin
Xinjiang
Gansu

Ningxia

Qinhai

Beijing
Tianjin 1309
Hebei
1477
Shanxi
Shandong 8734

Shaanxi Henan

Tibet
Sichuan

Hubei

Guizhou
Yunnan

Hunan

Jiangsu 3753
Anhui

Shanghai
Zhejiang 1991

Jiangxi
Fujian

Guangxi Guangdong

Hainan

Source: Tecnon OrbiChem

Liaoning

Inner
Mongolia

Total of 5
coastal provinces
17,264 kpta
= 39% of total China
Total for China
44,024 ktpa

APIC 2016

CHINESE CAUSTIC SODA & CHLORINE PRICES

Rmb/Metric Ton (inc. VAT)

Caustic Soda
Liquid Market
membrane

3,200
2,800
2,400
2,000
1,600
1,200
800

Chlorine
Liquid

400
0
2007

2008

2009

Source: Tecnon OrbiChem

2010

2011

2012

2013

2014

2015

2016

APIC 2016

CHINESE VALUE OF ECU

$/Metric Ton/ECU
800
700

ECU
value

Caustic Soda
Liquid Market
membrane

600
500
400
300

Chlorine
Liquid

200
100
0
2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Exc VAT
Source: Tecnon OrbiChem

APIC 2016

2013-2017 CHINAS PVC SUPPLY vs DEMAND

Thousand Metric Tons
20,000

Demand

18,000

Production

16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2013

2014

Source: Tecnon OrbiChem

2015

2016

2017

APIC 2016

2015 CHINA'S PVC DEMAND STRUCTURE

Profiles &
Windows
Pipes & Fittings

Plates & Boards

Other Rigid
Products
PVC Flexible
Products

Source: Tecnon OrbiChem

APIC 2016

PRODUCTION ROUTES TO PVC

EDC
Direct

Chlorine

VCM
Furnace

VCM

Ethylene
EDC
Oxy

Air

Chlorine
Hydrogen

Chlorine
Burner

Calcium Carbide
Water
Source: Tecnon OrbiChem

HCl
Acetylene

Reactor

HCl
PVC

VCM
Reactor

VCM

PVC

APIC 2016

EAST CHINA RAW MATERIAL PRICES

Rmb/Ton (inc VAT)
5,000
Calcium Carbide

4,500
4,000

HCl (100%)

3,500
3,000

Liquid Chlorine

2,500
2,000
1,500
1,000
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Tecnon OrbiChem

APIC 2016

EAST CHINA COAL vs CALCIUM CARBIDE PRICES

Rmb/Ton (inc VAT)
4,500
4,000

Calcium Carbide
Rmb/Ton

3,500
3,000
2,500
2,000
1,500
1,000
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Tecnon OrbiChem

Coal
Rmb/2.5 Tons

APIC 2016

2008-2015 CHINA'S CALCIUM CARBIDE PRODUCTION

Thousand Metric Tons
30,000
25,000
20,000
15,000
10,000
5,000
0
2008

2009

2010

Source: Tecnon OrbiChem

2011

2012

2013

2014

2015

APIC 2016

CHINA PVC-A PRODUCTION GROSS MARGIN

Dollars per Ton
1,200
Acetylene Based
(Cash Cost)

1,000
800

Acetylene Based
(Price excl. VAT)

600
400
200

Difference between
Acetylene Based
Price (excl. VAT) and
Acetylene Based
Cash Cost

0
-200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Tecnon OrbiChem

APIC 2016

CHINA PVC-E PRODUCTION GROSS MARGIN

Dollars per Ton
1,200
1,000
800
600
400
200
0
-200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Tecnon OrbiChem

Ethylene Based
PVC Cash Cost
Ethylene Based
PVC Price
(excl. VAT)
Difference between
Ethylene Based
Price (excl. VAT)
and Ethylene Based
Cash Cost

APIC 2016

MARGIN ON EXPORTS FOR CHINA PVC-A

Dollars per Ton
1,300
1,100
900
700
500
300
100
-100
-300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Tecnon OrbiChem

Acetylene Based
Cash Cost in
China
North East
Asian PVC
price cfr
Difference
between
North East
Asian
PVC price

APIC 2016

EAST CHINA PVC CASH PRODUCTION COSTS

(March 2016)

Northeast Asia cfr

International Spot
Supplies

$/Ton (excl VAT)

800
Other
costs

600

400

200

Chlorine
(0.59)

Price in
E China

Other costs

delivered

Chlorine
(0.62) +
Hydrogen

Ethylene
(0.47)
Market
price

CaC2 cost
(1.45)

0
Ethylene + Chlorine

Source: Tecnon OrbiChem

Calcium Carbide + HCl

APIC 2016

USA & CHINA CASH PVC PRODUCTION COSTS

(March 2016)
$/Ton ( for China excl VAT)
900
800

Northeast Asia cfr World Supplies

700
600

Export Sales Cost

500

Other
costs

Other costs
Chlorine
(0.62) +
Hydrogen

Chlorine
(0.59)

400
300

CaC2 cost
(1.45)

Ethylene
(0.47)

200
100
0
USA
Ethylene at cash
cost ex Ethane;
Chlorine at spot
price

Source: Tecnon OrbiChem

USA
Ethylene contract
price + Chlorine
spot price

CHINA
Ethylene +
Chlorine

CHINA
Calcium Carbide
+ HCl

APIC 2016

CASH COSTS OF PVC DELIVERED TO A SOUTH-EAST

ASIAN PORT (March 2016)
Captive
ethylene

1,000

Southeast Asia
cfr Spot
Price

Bought
ethylene

Freight

800

Other costs
Chlorine

600
400

Bought CaC2
200
0
USA
USA
Ethylene at Ethylene
cash cost ex contract
price +
Ethane;
Chlorine at Chlorine
spot price spot price

Source: Tecnon OrbiChem

MIDDLE
EAST

NE ASIA

CHINA
Ethylene +
Chlorine

CHINA
Calcium
Carbide +
HCl

APIC 2016

CHINA PVC EXPORTS vs CRUDE OIL PRICE

$/bbl

Thousand Metric Tons

160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0
2002

0
2004

2006

Source: Tecnon OrbiChem

2008

2010

2012

2014

2016

Crude oil
price, Brent,
$/bbl
PVC Monthly
Export
Volumes by
China

APIC 2016

USA: NATURAL GAS & CRUDE OIL PRICES in $/mmBtu

$/mmBtu
25

US Nat Gas
$/mmBtu

20

Oil
$/mmBtu
equivalent

15

Oil Minus Gas

$/mmbtu

10

0
2004

2006

2008

Source: Tecnon OrbiChem

2010

2012

2014

2016

APIC 2016

US PVC CONSUMPTION AND NET EXPORTS

Thousand Metric Tons
9,000

Capacity

8,000

Net Exports

7,000

Consumption

6,000

Production

5,000
4,000
3,000
2,000
1,000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Tecnon OrbiChem

APIC 2016

US PVC CONSUMPTION AND NET EXPORTS

Thousand Metric Tons
9,000

Capacity

8,000

Net Exports

7,000

Consumption

6,000

Production

5,000
4,000
3,000
2,000
1,000

Source: Tecnon OrbiChem

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

05

20

20

04

APIC 2016

CONCLUSIONS
Fracking in the USA has led to low cost crude oil production,
causing a transformation in world energy pricing.
o US natural gas prices have fallen to $2.50/mmBtu and below, lower
than anywhere else in the industrialised world
o Also ethane prices in the USA have fallen, such that ethylene
production costs are lower than anywhere else except the Middle
East
o Crude oil prices have stabilised at around $45/bbl
o The corresponding fall in naphtha prices has partially restored
competitivity to ethylene from naphtha crackers
o US electrical power costs and hence the cost of the ECU are lower
than for most other chlor-alkali producers
o With also ethylene prices low, US producers of EDC, VCM and PVC
have a substantial competitive advantage
Source: Tecnon OrbiChem

APIC 2016

CONCLUSIONS
Over-capacity of PVC in China will be partially corrected by
closure of some of the older and smaller acetylene-based VCM
and PVC plants
Acetylene-based PVC in China has been struggling to compete
with ethylene-based PVC and Chinese PVC exports fell in 2015
Exports of PVC from the USA will remain strong but on a
declining trend, as domestic consumption expands with
recovery of the construction market, but no PVC capacity
expansions are on the horizon for several years
PVC production in Europe will not expand, with some chlorine
plants shutting for good, so Europe (East plus West) could
become a net importer of PVC within a year or two
India has a strong economy and construction sector, but there
are no PVC expansions, so PVC imports will continue to rise
Source: Tecnon OrbiChem

APIC 2016

CONCLUSIONS
The chlor-alkali cycle has been on a caustic-weakening and
chlorine-strengthening phase for the past three years. As global
economic growth slows, this trend has also slowed, but for the
present there does still seem to be more strength in the chlorine
market than the caustic soda market.
Crude oil prices are likely to move up slowly (but erratically)
over the next few years, making naphtha-based ethylene less
competitive with ethane-based ethylene
But when (or if) world economic recovery gathers momentum,
ethylene prices will rise but chlorine prices will probably fall, so
PVC will gain in competitivity with other commodity plastics
such as the polyethylenes.

Source: Tecnon OrbiChem

..your source of expert

chemical industry knowledge