Abundant North American shale gas resources are creating lower energy prices for U.S. chlor-alkali and vinyls producers, enabling profitability despite a global oversupply of PVC expected to peak at more than 20 million metric tons in 2014.
In the study, the IHS Chemical 2014 World Analysis - Chlor-Alkali and 2014 World Analysis – Vinyls estimates that global PVC demand growth will average approximately 3.5 per cent annually during the forecast period. Nonetheless, the company projects an average oversupply of 18 MMT of PVC annually over the next decade.
“We can expect an oversupplied market to be the ‘new normal’ for the vinyls industry for the next 10 years, until the global economy improves significantly and vinyls demand picks up in key sectors such as construction,” said Steve Brien, director of chlor-alkali vinyls research at IHS Chemical and one of the study’s authors, in an October 9, 2013 statement to media.
“We are seeing some improvement in demand in the U.S. housing sector, but there is still too much global capacity,” added Brien.
Chlorine and vinyls demand is driven primarily by the construction sector, while caustic soda demand is largely determined by the manufacturing sector. In the aftermath of the global recession in 2008 to 2009, government-backed economic measures and stimulus packages in several countries supported a recovery and boosted vinyls demand, as many of the measures were targeted at infrastructure and public construction.
Since that time, however, the pace has eased considerably and growth in the sector will be anemic, the IHS report noted. Between 2013 and 2018, year-on-year growth for PVC is expected to be closer to four per cent. A wave of capacity additions — the majority located in China — is exacerbating today’s weaker demand growth environment.
China, with the largest capacity, output and demand, is now the leading producing country in the global chlor-alkali and vinyls market. Rapid demand growth during the past 20 years has encouraged massive investment in Chinese chlor-alkali and vinyls capacity, enabling the country to move toward self-sufficiency. However, as this new capacity is coming online, the Chinese economy has lost some of its momentum, and a pronounced slowdown in the Chinese construction sector, combined with still sluggish growth in developed regions, has led to a "huge capacity overhang today," Brien said.