Chemical Profile: Ethylene dichloride
USES
Roughly 95% of ethylene dichloride (EDC) is used in the manufacture of vinyl chloride monomer (VCM), nearly all of which goes into polyvinyl chloride (PVC) production. Thus, EDC supply/demand balances are influenced by the downstream PVC market. In addition, many EDC plants are integrated with VCM production.
The remaining EDC goes into the manufacture of chlorinated solvents. EDC has been used as a solvent in the textile, metal cleaning and adhesives industries.
SUPPLY/DEMAND
Asian EDC imports mostly come from major producers in the US and the Middle East, where northeast Asian buyers mostly buy from the US and southeast Asian buyers tend to get more cargoes from the three major producers in the Middle East. Occasionally, they get cargoes from local southeast Asian producers.
At present, supply of EDC has been tight on the back of turnarounds both in the US and Middle East. Supplies from the US are tight on the back of two major producers having turnarounds in April and May, respectively, according to market sources. EDC prices were also driven up by escalating ethylene prices at the beginning of 2017.
However, there was a large gap among buyers and sellers. Buyers of EDC were not willing to firm up their bids on the back of sluggish PVC markets. Chinese buyers were largely on the sidelines of the EDC spot market, and indicated they would buy ethylene and make EDC themselves instead.
PRICES
Asian EDC prices rose in Q1 2017, primarily due to higher feedstock ethylene prices and tight supply as a result of turnarounds in the US and the Middle East. EDC prices reached $370/tonne CFR NE Asia and $350/tonne CFR SE Asia in March 2017, the highest level since July 2015.
Prices started to soften from the end of March, following lower downstream PVC prices and at a time when ethylene prices started to stabilise. Softening PVC prices led to much lower bids and buying indications among buyers.
Sellers were not willing to lower offer prices too much amid the tight supply situations despite buyers bidding much lower on the back of weaker downstream PVC prices. Taiwanese major Formosa Plastics Corporation (FPC) lowered offers for its May PVC cargoes by $80/tonne. The softer PVC prices led buyers to decrease their bids and buying indications for EDC and left many in a wait-and-see mode.
TECHNOLOGY
In most facilities, EDC are produced via two pathways.
In the first pathway, ethylene is reacted with chlorine to give EDC. This is known as the “direct chlorination” method.
The second pathway is also known as the “oxychlorination” method. EDC produced from the first pathway will be decomposed to give vinyl chloride monomer (VCM) and anhydrous hydrochloride (HCl). HCl is then recycled to react with ethylene to produce more EDC and water as a by-product.
OUTLOOK
At present, spot EDC prices are softening as a result of lower downstream PVC prices. The spot market is divided on how EDC prices will move in the rest of the year. However, there exists a large buy-and-sell gap among buyers and sellers.
Buyers believe EDC prices will likely have a downward trend as downstream PVC prices are likely to fall further; they would rather take a wait-and-see position for lower-priced fixtures to emerge. In addition, some buyers are receiving regular shipments of contractual cargoes. For ethylene-based PVC producers in China, many chose to buy ethylene to make EDC. One reason is that high caustic soda prices lead to high operating rates of the chlor-alkali lines, which produce plenty of chlorine, which is reacted with ethylene to produce EDC.
However, producers instead were not willing to lower the prices given tight supply availability as a result of turnarounds in the US and the Middle East. The Middle Eastern producers have completed their turnarounds but they still need more time to catch up in supplying spot cargoes to the Asian markets.
Some also believe Japan would provide support for the EDC spot prices as the country has a healthy demand of EDC till H2 2017 because major Japanese producers are having turnarounds in its chlor-alkali lines and they need to procure sufficient volumes of EDC to run a smooth PVC production.