PVC’s Rocky Road to Survival
With last year's merger of Geon and Occidental Chemical's PVC businesses into Oxyvinyls, more than 60 percent of North American PVC capacity is accounted for by the three largest producers -- Formosa ...
With last year’s merger of Geon and Occidental Chemical’s PVC businesses into Oxyvinyls, more than 60 percent of North American PVC capacity is accounted for by the three largest producers — Formosa (16%), Shintech (19%) and Oxyvinyls (27%). Throw in a handful of other deals, such as Georgia Gulf’s purchase of Condea’s PVC business, announced restructuring of many PVC business units worldwide, environmentalists’ on-going attempts to cast vinyl as the pariah plastic and overall tight supply, and you get an image of a market with about as much stability as an Indonesian money market fund.
Appearances, however, can be deceiving.
There are several factors that account for restructuring and general volatility in the PVC business. First, PVC is arguably just pulling out of one the worst cyclical troughs in its history. Second, PVC, and its supply chain of chemicals, has always occupied a unique niche among commodity thermoplastic resins.
Basically, the chlorovinyls chain starts with salt (brine) and ethylene and ends in manufactured PVC products. The intermediate chemicals include chlorine, ethylene, dichloride, vinyl chloride, as well as neat and compounded PVC resins. Buyers exist for every product in the chain.
With overcapacity and eroding margins, PVC suppliers had to adapt to survive.
Supply consolidation has many PVC processors understandably worried as more control is put in fewer hands. To an extent, these fears have been borne out–a tightening supply has caused the price for suspension-grade PVC to double in the past year. Yet, in the long run, this same consolidation could also prove to have some beneficial effects for the PVC industry. For instance, fewer players in the market makes it less likely that PVC makers will invest irresponsibly. As a result, future troughs and peaks may be less severe than past ones, making business planning for processors more predictable. Also, improved margins for the suppliers should spur greater investment in new technology and research, a trend that will ultimately serve a long-term benefit of everyone in the PVC industry.
It has been the ability and willingness of the Dow’s, Bayer’s and GE’s of the world to invest in research, marketing and service that accounts for much of the growth of their resin product lines. PVC, on the other hand, has lacked a comparable investment coming from the supplier side. As a result, PVC has not been able to stand up to the challenges of new resins, such as TPEs and metallocene-catalyzed materials, in certain end markets. It has also suffered from being viewed as a contaminant in plastics recycling waste streams.
Yet PVC still remains the “infra-structure” plastic. The construction boom that is part of the current economic expansion has fueled the over-demand, under-supply of the resin. As well, PVC is holding its own in areas such as medical and recreation.
Efforts of activists to make PVC the environmental bad-guy appear to be stalled for now, as a prestigious panel of scientists, led by the U.S. Surgeon General, has cleared the safety of PVC in medical IV tubing; and other campaigns, such as one trying to obtain ban on PVC water pipes, appear to be going nowhere.
Better yet from the processors point of view, there is new capacity on the horizon — at least a billion new pounds by late 2001 in North America. This is no time for self-pity on behalf of the PVC industry. Consolidation should eventually provide some strength and stability to the market. There is no reason the resin can’t stand its ground in the market given reasonable levels of investment and reasonable attitudes of government regulators.