PVC markets of Europe

and South-East Asia: analysis

of profitability and production cost

Consulting
2010
2
Table of contents

Executive Summary 2

Approach to comparative analysis 3

Overview of PVC production sector 5

Global distribution of PVC production capacities 5

Types of VCM / PVC production processes 7

Pricing 8

Choosing the companies 9

European PVC producers 9

PVC producers in the South-East Asia 10

Results of comparison 11

Conclusions 13

Appendix 14

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 3
 Executive
Summary

The goal of the work is a comparative analysis of production

cost and contribution margin of ethylene-based PVC
production facilities of Europe and South-East Asia.

The analysis revealed the following:

• The European PVC production contribution margin

varies from 56,7 to 247,9 Euro / ton of PVC (excluding
PVC production at Râmnicu Vâlcea facility that is facing
negative contribution margin) and averages at 136,45
Euro / ton of PVC subject to the current average capacity
utilization level of 67%. The potentially achievable
contribution margin considering existing technologies
and prevailing prices – 190,85 Euro / ton of PVC.

• PVC production contribution margin in South-East Asia is

negative (−65,10 Euro / ton of PVC). It is caused by the
low capacity utilization (52% in 2009, including 44%
in China). Subject to the full capacity utilization under
prevailing prices the PVC production contribution margin
is estimated at 81,47 Euro / ton of PVC.

4
Approach to
comparative analysis
1. Due to the lack of publicly available data
on production costs and contribution margin of PVC
production along with some indicators required
for their evaluation, a number of parameters were
estimated indirectly. To ensure a solid approach to
analysis and practicality of our results we have analyzed
the companies that meet the following criteria:
• All the plants under review accommodate chlorine,
VCM, and PVC production facilities;
• We have analyzed companies that produce
suspension PVC and employ some of the most
commonly used production cycles by Vinnolit,
INEOS, Shin-Etsu, or Chisso.
2. The production cost of PVC has been estimated
using information on the capacity of PVC producers
and data on materials / power balance of the applied
production scheme. For instance for the factory
in Burghausen, Germany (Vinnolit) :
a) Capacity: 214,000 ton of PVC/year;
b) Raw materials and energy:
Expected consumption figures per 1 ton of PVC
Ethylene (100%) 460 kg
Chlorine (100%) 585 kg
Oxygen (100%) 139 kg
Steam 925 kg
Power consumption 290 kW h
Cooling water 152.3 m³
c) Basing on a) and b) feedstock requirements for the * Vinnolit data
production of 214,000 ton of PVC are calculated; * Uhde data
d) The cost of feedstock required for PVC production
was estimated basing on data from official sources:
trading floors, publishing houses, research agencies;
e) The cost items not quantified in the materials
/ power balance (General Production Costs,
for example) were estimated with the involvement
of the sector experts knowledgeable in specific
features of production processes applied by the
producers in question or by comparison with peers;
f) The production cost is estimated by aggregating
all the applicable costs estimated at d) and e).
3. The estimate was made according to the
following formula:
Proceeds − Production cost
Contribution margin = ,
Actual PVC Production
where:
The production cost is estimated at clause 2;
The proceeds were calculated as a cost of sales
of products made by the production facility
operating in the mode that provides for output at
the installed capacity level and at the price equivalent
to the average price for the period in question.
PVC markets of Europe and South-East Asia: analysis of profitability and production cost 5
Overview of PVC
production sector

* Harriman data Global distribution of PVC production capacities The aggregate global PVC production capacities
* Technical progresses Asia and Europe are the leading regions in terms of PVC by the end 2009 amounted to 47,972,000 ton/
for PVC production production capacities along with China accounting for year. The regional distribution of these capacities
by Y. Saeki and T. Emura, the bulk of PVC production in Asia (65%). is shown at Fig. 1 and Appendix (Table 1).
Polymer BREF
(Stuttgart-University)
* CMAI data 1% 1%
3% 1% 1%
3%
0% 0%
3% 3%

17% 37%
37% 17%

18%

18% 20%
20%

Asia (China) Middle East Asia (China) Middle East

Asia (without China) Africa Asia (without China) Africa
Europe Russia Europe Russia
North America Oceania North America Oceania
Latin America Latin America

Fig. 1. Global production capacities by region, 2009 Fig. 2. Global production by region, 2009

Global PVC production by end 2009 achieved The highest PVC production falls at Asia and
the level of 29,924,000 ton/year that is equivalent Europe with more than a half of Asian PVC
to the utilization level of 62%. Breakdown of production produced in China (51%).
is shown at Fig. 2 and the Appendix (Table 2).

6
Accordingly the capacity utilization ratio by regions is as follows (Fig. 3):

20,000 93% 100%

18,000 84% 90%
79% 77%
16,000 75% 80%
14,000 67% 70%
12,000 54% 60%
53%
10,000 44% 50%
8,000 40%
6,000 7734 7400 30%
6020 5699
4,000 20%
2,000 10%
0 1300 0%

Asia Asia North Europe Latin Middle Russia Africa Oceania

(China) (without China) America America East

Production, '000 ton / year

Idle capacities
Utilization level

Fig. 3 Utilization of PVC production capacities in various regions, 2009

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 7
 Types of VCM / PVC production processes
The raw materials for production of PVC is vinyl chloride monomer (VCM). Depending on the feed materials used for
the VCM production there are three main types of VCM crackers: ethylene based, acetylene based and mixed type.

CI2

Direct chlorination

Ethylene EDC EDC distillation

Oxychlorination Recycling of EDC

Oxygen
EDC thermal decomposition
HCI

VCM
Fig. 4. Production of VCM from ethylene and chlorine (a chlorine balanced approach)

HCI

Oxychlorination VCM

Acetylene

Fig. 5. VCM production from acetylene

CI2

Direct chlorination Thermal decomposition of EDC

Ethylene
HCI VCM

Acetylene Oxychlorination

Fig. 6. Mixed approach to VCM production from ethylene and acetylene

8
Ethylene-feed crackers use ethylene and chlorine as
raw materials which are then used for production of
ethylene dichloride (EDC) which, in its turn, is processed
into VCM. Oxychlorination allows utilisation of chlorine
overstock produced during the main process.
Pricing
The PVC production cost depends on key types
of production expenses: raw materials (ethylene,
chlorine, acetylene) and processing, with power
costs as the latter’s key driver.

As for the acetylene-feed crackers it employs calcium
carbide (usually produced from limestone and coking
coals) as the feedstock, forming acetylene when mixed
with water. This acetylene is then proceeds for the vinyl
chloride monomer production.
The mixed approach implies joint application of these
two types of crackers with the hydrogen chloride produced
from ethylene being used further to react with acetylene.
The received VCM is then polymerized using one of the
four methods: suspension, emulsion, in the bulk or in
solution. The suspension polymerization is the most
common VCM polymerization method in the world.
In Europe the key price driver is the price for
ethylene as it accounts for ~45-55% of the
PVC production cost when the ethylene-based
production approach is applied.
In Asia PVC prices are greatly influenced by the
PVC prices in China and therefore, in addition
to ethylene prices, the cost of acetylene widely
used for the PVC production purposes in China
is of growing importance in the region.

Due to relatively easy access to hydrocarbons

in Europe VCM production there usually employs
ethylene and chlorine feed crackers.

In South-East Asia, mainly in China, the bulk of

VCM production is oriented at acetylene consumption.
This fact is caused by the lower (as compared
to Europe) availability of hydrocarbons as well
as by huge reserves of coking coals and limestone
used for the production of calcium carbide which,
in its turn, is used for the acetylene production.

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 9
Choosing
the companies
* Harriman, CMAI, Platts,
Vinnolit, Chisso, INEOS,
Technical progresses for PVC
production by Y. Saeki and
T. Emura, Deloitte analysis
10
European PVC producers
In 2009 the European PVC producers reached
the capacity of 9,150,000 ton of which PVC
produced from ethylene accounted for 98%
(8,989,000 ton) of the total output and that
produced from acetylene - 2%. The ethylene based
PVC production capacities in their turn can be broken
down to suspension PVC production (8,105,000 ton,
90% of the ethylene based PVC production) and
emulsion PVC production (884,000,000 ton or 10%).
PVC production leaders are as follows: Ineos
(18% of European PVC production capacities),
Solvin (16%), Arkema (10%), Vinnolit (9%),
Shin-Etsu (7.5%) and LVM (5%) (see the Appendix,
fig.1). The diagram with key European producers of the
suspension PVC is presented in the Appendix (Fig. 2).
Ethylene based PVC production market players
may be present at all three stages of PVC
production (production of chlorine and sodium
hydroxide as by-product from sodium chloride,
production of ethylene dichloride by direct
chlorination and oxychlorination of ethylene,
production of vinyl chloride from ethylene
dichloride, production of PVC by VCM
polymerization), as well as any one of them.
Typical feature is the presence of ethylene dichloride
production in close proximity with the chlorine
production facilities and as the chlorine transportation
may be difficult the ethylene is most often bought
from ethylene producers. In addition the capacities
may not correspond with each other at different
stages and the companies may use self-produced
semi-finished products (chlorine, ethylene, EDC, VCM)
and purchase these components at the same time.
For the purposes of reviewing the European
production let us select the companies that
integrate all the PVC production stages from chlorine
production to VCM polymerization using both
its own and purchased ethylene materials. Such
producers are listed in the Appendix, Table 3.
PVC producers in the South-East Asia
China is the key PVC producer in the South-East
Asia and the whole world. It is also the world’s
No. 1 in terms of PVC production capacities:
in 2009 the aggregate capacity achieved the
level of 19,890,000 ton / year, that is 37% of the
world’s total capacity). However such a high level
is achieved due to large investments in construction
of new production facilities prior to the global
financial crisis. 2009 saw the aggregate utilization
ratio of the PVC production in China reach 44%
(in Europe this factor amounted to 68%, in other
Asian countries – 79%; while the production
in China in 2009 totaled 7,734,000 ton / year
or 26% of the global production level).
PVC production in China is represented by two key
types: an acetylene based and ethylene based and the
former type prevails. The acetylene-based approach uses
calcium carbide (as a rule produced from calcareous
rock and coking coals which are more readily available
in China than hydrocarbons) as key raw materials.
Calcium carbide is used to produce acetylene which
in its turn is used for the vinyl chloride monomer
production In addition there are mixed type production
facilities in China where the mix of vinyl chloride
produced from acetylene and vinyl chloride produced
from ethylene is polymerized. By end 2010 the capacity
of PVC production from acetylene is expected to achieve
16,100,000 ton / year (81% of the total PVC production
capacities in China), the capacity of PVC production
from ethylene – 3,040,000 ton / year (15%), that of
mixed type production – 750,000 ton / year (4%).

Six key producers of PVC from ethylene may

be selected in China (Appendix, Fig. 3) with all
of them integrating the entire production chain
from chlorine production to the polymerization.

The remaining PVC production in the region

originates mainly from Japan, Taiwan and South
Korea. The largest facilities there belong to
Asahimas Chemical (ASC, majority owned by
Japanese Asahi Glass), LG Chemical Ltd from
South Korea, Formosa Plastics from Taiwan as
well as Shin-Etsu from Japan. These four countries
account for 81% of production and 86% of capacities
in the South-East Asia (see Appendix, Fig. 4).

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 11
Results
of comparison

Results of Deloitte calculations are shown in Table 1

Table 1. Economic performance per 1 ton of PVC

PVC price, PVC Ethylene, Chlorine, Processing, Utilization Contribution

EUR / ton production EUR / ton of EUR / ton of EUR / ton of ratio, % of margin, Euro
cost, EUR / PVC PVC PVC installed / ton of PVC
ton capacity
Europe average 1 057 866 434 161 271 if 100% 190,85
South East Asia average 730 673 323 100 250 if 100% 81,47

Table 2. Economic performance calculated on the basis of monthly production of PVC with breakdown by producers

PVC sales, PVC Ethylene, Chlorine, Processing, Utilization Contribution

EUR ’000 production EUR ’000 EUR ’000 EUR ’000 ratio, % of margin, Euro
cost, EUR installed / ton of PVC
’000 capacity
Gendorf, Germany 7 647 6 499 3 138 1 164 2 196 82% 158,78
Runcorn, UK 9 427 7 405 3 539 1 313 2 553 78% 247,93
Burghausen, Germany 9 617 8 174 3 947 1 465 2 762 82% 158,78
Tarragona, Spain 9 076 8 540 4 103 1 523 2 915 80% 56,69
Neratovice, Czech Republic 10 762 9 132 4 421 1 640 3 071 83% 160,03
Cologne, Germany 11 352 9 647 4 659 1 729 3 260 82% 158,78
Porsgrunn, Norway 11 282 9 620 4 634 1 719 3 267 81% 155,6
Stenungsund, Sweden 12 679 10 635 5 208 1 932 3 494 88% 170,38
Knapsack, Germany 12 613 10 719 5 176 1 921 3 622 82% 158,78
Rheinberg, Germany 19 235 16 347 7 894 2 929 5 524 82% 158,78
Tavaux, France 21 313 18 245 8 788 3 261 6 196 81% 151,51
Balan, France 23 871 20 434 9 843 3 652 6 939 81% 151,51
Marl, Germany 24 674 20 970 10 126 3 757 7 086 82% 158,78
Wilhelmshaven, Germany 25 226 21 439 10 353 3 841 7 245 82% 158,78
Kazincbarcika, Hungary 26 510 23 417 10 889 4 041 8 488 69% 123,25
Jemeppe, Belgium 34 876 29 856 14 381 5 336 10 139 81% 151,51
Râmnicu Vâlcea, Romania 12 967 14 933 5 326 1 976 7 631 30% -160,24
Europe average 136,45
Hebei Jinniu Chemical, China 3 342 3 781 1 488 458 1 835 44% -65,10
LG Dagu, China 11 626 13 150 5 175 1 592 6 383 44% -65,10
Tianjin Dagu, China 13 370 15 122 5 951 1 831 7 341 44% -65,10
Shanghai Chlor-Alka, China 13 660 15 451 6 080 1 871 7 500 44% -65,10
Sinopec Qilu Co. Ltd., China 17 438 19 725 7 762 2 388 9 575 44% -65,10
South East Asia average -65,10

12
Conclusions

Hebei Jinniu Chemical, China

Sinopec Qilu Co. Ltd., China

Shanghai Chlor-Alka, China
Râmnicu Vâlcea, Romania
247,9

Tianjin Dagu, China

250

LG Dagu, China
200 170,4 1
158,8 158,8 160,0 158,8 155,6 158,8 158,8 151,5 151,5 158,8 158,8 151,5
150 123,3
100 2
56,7
50

-50
Gendorf, Germany

Runcorn, UK

Burghausen, Germany

Tarragona, Spain

Neratovice, Czech Republic

Cologne, Germany

Porsgrunn, Norway

Stenungsund, Sweden

Knapsack, Germany

Rheinberg, Germany

Tavaux, France

Balan, France

Marl, Germany

Wilhelmshaven, Germany

Kazincbarcika, Hungary

Jemeppe, Belgium
-100 -65,1 -65,1 -65,1 -65,1 -65,1

-150

-200 -160,2

-250

European producers 1 Maximum feasible contribution margin of PVC production in Europe, 2009
Chinese producers 2 Maximum feasible contribution margin of PVC production in Asia, 2009

Fig. 1 Contribution margin of PVC production in Europe and Asia, 2009

• Average contribution margin of PVC production • Given the existing capacity utilization ratio
in Europe is 136,45 Euro / ton of PVC. Excluding (52%, including 44% for China) the PVC
non-profitable PVC production at Râmnicu production contribution margin in South-East
Vâlcea (Romania) the contribution margin Asia is negative (−65,10 Euro / ton of PVC)
is within the range between 56,7 Euro / ton for all the companies discussed. Subject to
of PVC (Tarragona, Spain) and 247,9 Euro / ton of the full capacity utilization under prevailing
PVC (Runcorn, UK). Subject to existing technologies prices the PVC production contribution margin
and prevailing prices potentially achievable is estimated at 81,47 Euro / ton of PVC.
contribution margin will be 190,85 Euro / ton of PVC.

Table 1. Structure of PVC production capacities Table 2. Structure of global PVC production * Harriman data
in the world, 2009 by regions, 2009 * CMAI data, Stream Report

Capacities, 2009 ‘000 ton / year Production, 2009 ‘000 ton / year
Asia (China) 17 700 37% Asia (China) 7 734 26%
Asia (ex China) 9 367 20% Asia (ex China) 7 400 25%
Europe 8 551 18% Europe 6 280 21%
Russia 627 1% North America 6 020 20%
North America 8 013 17% Latin America 1 300 4%
Latin America 1 541 3% Near East 740 2%
Near East 1 393 3% Africa 350 1%
Africa 650 1% Oceania 100 <1%
Oceania 130 <1% Total 29 924 100%
Total 47 972 100% Total 47 972 100%

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 13
Appendix

* CMAI data, Stream Report 1,800 1,586

* Harriman data 1,443

1,600
1,400
1,200
1,000 857 786
800 643
600 486 443 429 400
400 337

200
0

Ineos Solvin Arkema Vinnolit Shin-Etsu LVM Oltchim Vestolit Borsodchem Anwill SA

Fig. 1. PVC production leaders in Europe, ‘000 ton / year, 2009

969
1,200

1,000
787 730

800
602
523
600 450
400
429
400 313 308

276 257 249

200 135 130
135 112 104
0

Solvin Ineos Vinyls Vinnolit Borsodchem Vestolit Arkema Oltchim Spolana Ercros
(Anwil)

Production, '000 ton / year

Idle capacities

Fig. 2. Production and total capacity of fully integrated suspension PVC production facilities in Europe,
‘000 ton / year, 2009

14
800 800

700

600 600

500

400 400 370

300 250
200
115
100

Tianjin Dagu Sinopec LG Shanghai Tosoh Hebei Jinniu

Chemical Qilu Chlor-Alkali (Guangzhou) Chemical
Chemical Chemical
Industries

Fig. 3. Suspension PVC production capacities in China (ethylene based), ‘000 ton / year, 2009

18,000 17,700

16,000

14,000

12,000

10,000

8,000
7,734
6,000

4,000
2,393
2,000 1,754 1,498
1,750 1,470
0 1,295

China Japan Taiwan South Korea

Production, '000 ton / year

Idle capacities

Fig. 4. PVC production and total capacity in Asia, ‘000 ton / year, 2009

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 15
* Upgrade of existing Producer Location Established in Capacity
capacities growth
* Mixed type
1960-1970
(ethylene + acetylene)
processing capacities Solvin Jemeppe, Belgium 1949
* Harriman, CMAI data, Oltchim Râmnicu Vâlcea, Romania 1970
Deloitte analysis
Borsodchem Kazincbarcika, Hungary 1963 6
Ineos Vinyls Wilhelmshaven, 1980
Germany
Vestolit Marl, Germany n/a
Arkema Balan, France n/a
Solvin Tavaux, France 1953
Solvin Rheinberg, Germany 1958
Vinnolit Knapsack, Germany n/a
Ineos Vinyls Stenungsund, Sweden 1967
Ineos Vinyls Porsgrunn, Norway 1950 55
Vinnolit Cologne, Germany n/a
Spolana (Anwil) Neratovice, Czech Republic n/a
Ercros Tarragona, Spain n/a
Vinnolit Burghausen, Germany n/a
Ineos Vinyls Runcorn, UK n/a
Vinnolit Gendorf, Germany n/a
Tianjin Dagu Chemical Co. Ltd. China 1939
LG Dagu Chemical Ltd. China 1995
Sinopec Qilu Co. Ltd. China 1966
Shanghai Chlor-Alkali Chemical Co., Ltd. China 1992
Tosoh (Guangzhou) Chem Industries Inc China 2007
Hebei Jinniu hemical China 1979

16
 Utilization %

1970-1980 1980-1990 1990-2000 2002 2004 2006 2008 2009

450 81%
36 U 450 30%
150 400 69%
320 82%

313 82%
308 81%
275 81%
244 82%
160 82%
70 110 150 88%
U 80 145 81%
144 82%
135 83%
130 80%
122 82%
115 78%
97 82%
280 480 680 240 460 44%
240 340 340 400 400 44%
230 600 600 600 600 44%
320 390 430 470 470 44%
- - - 220 250 44%
299 299 295 230 115 44%

PVC markets of Europe and South-East Asia: analysis of profitability and production cost 17
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PVC markets of Europe and South-East Asia: analysis of profitability and production cost 19
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