USES

Ethylene dichloride (EDC) is an intermediate chemical toward the production of polyvinyl chloride (PVC), with some incidental uses. It is a clear colourless liquid with a sweet odour. More than 98% of production goes to the manufacture of vinyl chloride (VCM) to make PVC. Other outlets for EDC include the production of chlorinated solvents, including trichloroethylene (TCE), ethylene amines, vinylidene chloride and trichloroethane. It is an intermediate in the production of perchloroethylene and used as a catalyst in hexachlorophene production. EDC gas is also used as a solvent in the textile, metals and adhesives industries.

SUPPLY/DEMAND

EDC is mostly produced at integrated plants that make PVC. Because of the close connection to PVC, with its many uses in construction applications, EDC demand is also closely tied to construction activity. Demand for EDC is expected to increase at 4-5%/year through 2020 on growth and construction demand for PVC in developing countries and continued, but maturing, demand growth in developed countries.

Supply growth is expected to continue with the US being the low-cost producer on inexpensive ethane from shale-derived natural gas. Five ethane crackers are now under construction or just completed in the US with total additional capacity of more than 6.5m tonnes/year. Most of the new production capacity is expected to be up and running by the end of 2018 and others are in the pipeline.

The US produces about 27% of total global EDC output, estimated at about 37m tonnes in 2015, according to a report by Merchant Research Consulting. Europe produces about 30% and Asia-Pacific countries contribute about 20%. The US exported 1.35m tonnes of EDC in 2017, mostly to markets in Asia, where almost half of demand resides. That was up from 766,000 tonnes in 2008, according to the US International Trade Commission.

Higher production in Asia has reduced US exports to that region. But the closure of some chlor-alkali plants in Europe have created demand for US EDC in that market to support PVC production in some Mediterranean markets. That region is also receiving EDC from the Middle East, where plentiful natural gas production has given that market a significant low-cost production advantage.

PRICES

Global ethylene prices declined through the last half of 2017 as prices for liquid caustic soda rose sharply. US producers capitalised on high caustic soda prices by ramping up production of chlorine, of which caustic soda is a byproduct. The excess chlorine was exported in EDC, sending global values lower on long supply. Prices recovered slightly during the first half of 2018 to about $300/tonne FOB US Gulf. Greater domestic demand for PVC is helping to firm EDC in global markets.

TECHNOLOGY

EDC is usually produced through one of two main production methods: direct chlorination of ethylene and pure chlorine or oxychlorination, where ethylene is introduced to anhydrous hydrogen chloride. Many EDC plants use a combination of the processes to consume the HCl byproduct made in the polymerisation of EDC to make VCM.

EDC is toxic and flammable in both its liquid and vapour forms. Incidental contact induces eye, skin and throat irritation. It is a carcinogen with prolonged and repeated exposure and can cause death if inhaled in concentration. Production is conducted in closed loop systems to prevent worker exposure.

OUTLOOK

The price and demand outlook for EDC is closely tied to PVC. US PVC and EDC were caught up in escalating tariff threats between the US and China during Q2 2018, clouding the outlook, as China is the largest buyer of US EDC exports.

Meanwhile, US producers are incrementally expanding US PVC production capacity to keep up with global export demand. That long-term, overarching trend is likely to also maintain moderate upward pressure on EDC prices in global markets as US producers work to serve the domestic market where they get greater returns, leaving less EDC available for spot export.

Environment concerns about some of the plasticizers used in PVC may also tend to hamper demand growth, but newer and safer plasticizers are being introduced to counter those concerns.

Demand for plastic pipe made from PVC is expected to grow at 5% or more a year as developing countries update water utilities and irrigation systems, likely leading to greater EDC consumption.

Any significant change in global construction activity would have a direct impact on PVC demand and prices.