|PVC demand returned to positive growth in 2010 following the collapse in consumption in 2008 and 2009. The global economic slowdown has taken its toll on the construction sector, dramatically reducing building activity in Europe and North America. China has become the main driver of global growth. Following a decline in demand in China in 2008, the government�s economic stimulus packages have buoyed consumption and underpinned positive growth over 2009-2010. Producers in Western regions have been able to maintain operating rates due to large volume of exports. United States producers benefitted from reduced ethylene feedstock costs, large integrated plants and a weak dollar with the country responsible for over 60% of global trade in 2010. Operating rates remained at historical lows in 2010 with the output of large sections of acetylene-based Chinese capacity limited in the second half of the year as government policy on energy conservation reduced supply of calcium carbide feedstock. PVC demand growth is forecast to continue in 2011 but the start-up of additional capacity in China will see global operating rates remaining low, as per Nexant�s Vinyls Chain Market Dynamics report.
In recent years, environmental and safety issues as well as substitution by polyethylene have negatively affected PVC consumption. Several countries have legislated against the use of plasticised PVC in children's toys. PVC consumption in food packaging has also declined, although more as a result of better cost-performance of other polymers than its poor environmental and health perception. In addition, substitution by polyolefins in cable and wire applications and certain construction applications have eased growth in some segments. However, the cost competitiveness of PVC is expected to maintain support for consumption growth in the key construction sector once that industry recovers. High consumption growth in populous nations such as China and India will make Asia the major driver of global PVC consumption growth. While consumption in the United States has been declining since 2004, growth in Mexico and an expected recovery in demand in the United States will support future growth rates in North America. Western Europe will show the lowest growth, due to the already high per-capita consumption rate, and low GDP growth outlook. Growth in Eastern Europe and the Middle East is running at very high rates due to oil wealth, while demand in South America will benefit from high GDP growth and infrastructure development.
Regional capacity development shows considerable variation due to the sharply differing consumption outlook and cost of production in different regions. Low growth and high energy prices make investment in North America and Western Europe unattractive, while the opposite is true in the Middle East. Capacity development in China is proceeding rapidly due to the massive demand growth and the relative attractiveness of coal based production there. Other parts of Asia show minimal development due to the lack of competitively priced feedstock and abundance of capacity already installed. Some major capacity developments are already underway in North America, which have proceeded despite the ongoing contraction in domestic demand. Much of this new supply will go to foreign markets. The capacity development that is underway in China is unprecedented. Capacity has expanded from 5 mln tpa in 2003 to over 15 mln tpa in 2009, almost 90% of total global capacity expansion over the period. Despite legitimate environmental concerns, relating both to massive carbon emissions and mercury pollution, the development of acetylene based capacity in China shows no sign of slowing. The government�s effort to restrict the construction and expansion of less efficient, environmentally hazardous plants has had little impact on the overall pace of development, although has perhaps prevented some sub-scale projects from moving ahead.
While coal/acetylene technology has been progressively replaced by ethylene-based production in other regions, coal based production in China has been encouraged as it does not require imported feedstock, or compete for the limited supplies of ethylene. The required feedstocks � coal and limestone � are concentrated in the Western part of the country, which are comparatively underdeveloped. Industrial activity there is subsequently inexpensive, and provides economic growth in otherwise isolated areas. The pace of capacity development in the Middle East has been slow because of the lack of local consumers for the caustic soda by-product from chlorine production, and the availability of more attractive investment opportunities in olefins. The higher long-term global energy pricing environment has however brought the focus back onto the ethylene and power cost advantages in the region, leading to new interest in projects. Regional demand growth has also considerably outpaced previous expectations, providing a much larger domestic market for new entrants to sell into.
Operating rates have fallen sharply in recent years as capacity has increased while demand has fallen. Further capacity additions in Asia, Eastern Europe and the Middle East will see rates fall through 2011, before beginning to recover in 2012. The arrival of large volumes of acetylene-based PVC production has changed many aspects of the global market. The massive development in capacity has offset imports of PVC into China, which had been running in excess of 2 mln tpa over 2001-2004. As the acetylene-based product set the price in the Chinese market, ethylene-based operators had difficulty selling into the domestic market due to the rapid increase in their cost of production, which was fundamentally based on crude oil as in other regions. Chinese product was therefore aggressively marketed around the world, while China continued to import from more competitive integrated operators in neighbouring countries in East Asia. The temporary reduction in oil prices between 2008 and 2010 eroded the advantage seen by acetylene based producers, leading to a marked increase in imports into China. As the capacity build continues, China is expected to increase production and move to a balanced position forcing its East Asian counterparts to look further afield once more. Exports from North America have risen sharply in recent years, driven higher by a combination of large capacity additions, declining domestic demand and the benefit of ethane-based ethylene supply. The major effect has come from the United States, where exports increased from 650000 tons in 2005 to 2.7 mln tons in 2010. The United States is forecast to remain a net exporter but the overall level of exports will decline as the local construction market recovers.
The rapid growth of demand in the Middle East has outpaced new capacity development. The current slate of projects will not be sufficient to meet demand growth, and therefore the region will remain a net importer for much of the outlook period. Most of the import growth to date has been from East Asia.