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Vinyl Chloride Bleak Outlook For the Construction Industry Overshadows Europe's PVC Market

| Editor: Dominik Stephan

The crisis on Europe's construction and housing market has severe effects on the vinyl chloride market: – and exports will most certainly not turn the tide. A recent ICIS report gives a bleak outlook for the producers of polyvinyl chloride.

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Construction production index in the EU (Picture: Eurostat)
Construction production index in the EU (Picture: Eurostat)

With recent insecurities in the Eurozone, also the vinyl chloride market is shaken by the fear of of a double-dip recession. According to recent ICIS reports, especially the crisis on the housing and constructions sector (which consumes more than 50 percent of the total PVC production) destabilizes the market. Only recently, construction output in the EU gave in by 1.3 percent in October 2011, Eurostat statistics agency says.

This bleak outlook dampens the hope for a market recovery within the near future: Although the average PVC output grew by 0.6 percent in the first 10 months of 2011, the sector has barely offset the consequences of the 2010 downtrend, let alone the collapse suffered when the credit crunch hit in 2008, states ICIS.

With a falling demand for PVC also the production of chlorine, a basic feedstock, and caustic soda, a chlorine by–product gave in. Rising costs for energy and ethylene caused standstill at the European spot markets for ethylene dichloride (EDC) and vinyl chloride monomer (VCM), especially since PVC producers only make conservative offers.

Also exports can not compensate for weak demands in the EU: Softening prices in both the US and Asia and a negative outlook in the global industry have lead to European FOB (free on board) prices falling by almost $400/tonne (€298/tonne) since June 2011, says the ICIS. Now, with comparable high energy costs, slow domestic demand for downstream PVC and strict environmental legislation, PVC producers fear losing competitiveness compared to foreign companies. The introduction of the EU's Emissions Trading System (ETS) could mean the end for about 10 percent of the region's ethylene plants, pessimist fear.

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