Recently, Harry Thomas, head of inorganic chemicals business of S&P Global Bulk Commodity Insight, said that in the next few years, with the substantial increase of PVC production capacity of China and India, which were originally the demand center of global PVC, the trade pattern of the global PVC market will change significantly. Affected by this, India's PVC demand will gradually become self-sufficient, and China will increase its export efforts to solve the problem of domestic overcapacity. In other regions, Europe is reducing PVC production due to a significant increase in production costs, thereby reducing exports. American manufacturers have a huge cost advantage. While interest rates have risen significantly to suppress the real estate market, domestic demand for PVC has decreased significantly. They can only balance the sluggish domestic demand by increasing exports.
China and India lead a significant increase in production and demand
Previously, the strong market outlook for global olefin products had sparked an investment boom. In terms of PVC, from 2023 to 2027, at least 9 million tons/year of new production capacity will be put into operation globally. Most of the new PVC production capacity will be located in China and India, which are also the centers of demand growth. In addition, due to its cost advantage, the United States will also add some PVC production capacity, and the Middle East and Southeast Asia will also add new production capacity.
Thomas pointed out that according to a survey by S&P Global, there are 19 PVC projects planned to be completed and put into operation globally between 2023 and 2027, with a total production capacity of 9 million tons per year, most of which are located in China and India. Among them, China is currently constructing 8 PVC projects with a total production capacity of 3.7 million tons per year. At the same time, India's Adani Group will produce a PVC production capacity of 1 million tons/year in 2025, and an additional 500000 tons/year in 2027; Reliance Industries will produce a PVC production capacity of 1.5 million tons per year in 2026. This 3 million tons/year new production capacity is transformative for India and will have a significant impact on trade. At present, the domestic PVC production capacity in India is only 1.6 million tons per year, while the annual demand is 3.4 million tons.
In terms of demand, Thomas stated that in 2022, the total global demand for PVC was 48 million tons, a decrease of 2 million tons compared to 2021. But Thomas believes that this decline is an abnormal phenomenon. Thomas said, "Our prediction is that compared to the current situation, there is expected to be a significant increase in global PVC demand
S&P Global predicts that global PVC demand will reach 58 million tons by 2027, with a compound annual growth rate of nearly 4% from 2023 to 2027. The growth of global PVC demand will be concentrated in China and India. In China, the expected annual growth rate will decrease from around 4% to 3%, but China's share of global PVC market demand is 44%, which means that in the next five years, China's new PVC demand will continue to account for nearly half of global new demand. By comparison, India is a market with much smaller demand for PVC. In 2022, India's PVC demand only exceeded 4 million tons, but demand growth is expected to surge from 4% in 2017-2022 to 6% or more in 2023-2027. From 2023 to 2027, India's new PVC demand will account for nearly 20% of global new demand. S&P Global predicts that other regions with high growth in PVC demand in the next five years, including Southeast Asia, the Middle East, and Africa, are expected to account for nearly 20% of global new demand.
Europe reduces exports due to high costs
S&P Global believes that China's PVC exports will grow, not only due to domestic overcapacity, but also due to the withdrawal of European producers. After the Russia-Ukraine conflict in early 2022, energy costs soared and European producers were forced to reduce production. In 2022, PVC exports in Western Europe decreased by approximately 500000 tons. Thomas said, "40% of the chlorine gas produced in Europe is used to manufacture PVC products, and electricity accounts for approximately two-thirds of the variable cost of chlorine gas production." According to data from the European Chlorine Association, in December 2022, Europe produced 500000 tons of chlorine gas, much lower than the 800000 tons in December 2021, which is the lowest production month in more than 20 years. Thomas said, "Less chlorine means less PVC production, which has changed the global trade pattern
Despite production cuts, Western Europe remains the world's main PVC export region in 2022. According to data from S&P Global, in the global 13 million tons of PVC export trade in 2022, Western Europe accounted for 3 million tons, North America accounted for 3 million tons, Northeast Asia accounted for 2.5 million tons, China accounted for 2.2 million tons, and other regions accounted for 2.3 million tons.
The United States maintains a cost advantage and increases exports
In the United States, high interest rates and weak economic growth will bring pressure to the real estate market this year, thereby dragging down the growth of domestic PVC demand. Thomas said, "The number of new housing units in the United States has increased for 15 years, but since April 2022, the number of new housing units in the United States has decreased by about 25%." This led to a significant decline in domestic PVC demand in the second half of 2022, reaching its bottom in December, just over 272000 tons, which is the lowest level in 8 years. At the same time, the export volume doubled to 250000 tons.
Although the trend of declining new housing units in the United States is expected to continue, PVC production should not be affected. American PVC manufacturers have the best cost advantage globally. The low price of natural gas means that the cost of producing raw chlorine gas is low, while the low price of ethane means that the cost of producing raw ethylene is low. Thomas said, "If American manufacturers are willing, they can export more PVC
Thomas pointed out: "The cash cost of PVC production in the United States has risen from about $500/ton before the COVID-19 epidemic to $800/ton during the epidemic. We predict that the price of natural gas in the United States will remain slightly higher than $4/million British thermal units in the next three years, and the price of ethylene will remain at about $550/ton. Under this price level, we expect that the cost of PVC in the United States will reach $650 to $680 per ton." Although global and US demand for PVC decreased in 2022, US PVC production increased by 3%.
Thomas said, "Since January, domestic PVC demand and exports in the United States have been relatively strong so far. We expect US manufacturers to meet domestic demand and supplement exports, and reach higher production by 2023
