USES

About 95% of ethylene dichloride (EDC) is used to make vinyl chloride monomer (VCM), most of which goes into polyvinyl chloride (PVC) production. Many EDC plants are integrated with VCM production, with EDC being cracked to produce VCM.

Most of the remaining EDC goes into the manufacture of chlorinated solvents, with other uses in producing perchloroethylene, trichloroethane, tetrachloroethane and ethy-lenediamine. EDC demand in Europe is mostly driven by PVC production.

SUPPLY/DEMAND

Contract demand for EDC rose towards the end of 2016 due to major conversion work at a European producer. However, spot demand for European EDC was low for most of 2016, with very few deals taking place.

The low liquidity for the majority of 2016 was attributed to weaker demand in the downstream PVC market than in 2015, with consumption not reaching the levels required to trigger additional consumption of EDC. In addition, there were few major PVC production issues, which might have required a producer to purchase additional feedstocks at short notice.

Demand recovered slightly in mid-Q4 2016, despite the generally weaker season for consumption of PVC. This trend continued into early 2017, with prices increasing by 24% from the beginning of January to March. This was due to higher consumption in the downstream PVC market, particularly stronger demand in northwest Europe for February, as well as stronger export demand for markets such as Turkey. In addition, higher feedstock ethylene prices encouraged producers to raise EDC prices in order to recoup costs.

In Q2, spot prices remained at similar levels but liquidity fell with few new deals carried out. Feedstock prices also levelled off, meaning that there was less upward pressure in the market compared to earlier in the year.

PRICES

European EDC spot prices were flat through most of 2016 as a result of very low spot activity. This was partially due to the low demand for downstream PVC, and partially due to the structural quietness of the EDC market, with the majority of production being integrated into PVC production.

Despite the rising prices for feedstock ethy-lene, any price increases attempted by sellers in Q1-Q3 2016 failed to materialise or could not be confirmed due to low liquidity.

However, in mid-Q4 2016 prices rose due to higher feedstock ethylene costs. In early 2017, demand gradually began to rise as a result of the firm downstream PVC market, as well as higher export demand and further price increases for ethylene. The upward trend in prices continued in Q1 2017 before levelling out in early Q2.

TECHNOLOGY

EDC is made from the chlorination of ethylene in one of two processes – direct chlorination using pure chlorine and ethylene, or oxychlorination, where ethylene reacts with chlorine in hydrogen chloride.

Many EDC/VCM plants use a combination of these processes to consume the hydrogen chloride by-product from cracking EDC to VCM.

A high-temperature direct chlorination process has been developed by VinTec, owned by Vinnolit (part of Westlake Chemical), and commercialised in 2006 at Belgian producer LVM.

OUTLOOK

In the short-to-medium term, the global PVC market should be soft due to falling demand in Asia combined with downstream consumption failing to rebound in Turkey following the referendum to expand presidential powers.

Contract EDC demand is also expected to be weaker than in 2016 following the completion of mercury conversions in Europe in early 2017. As a result, there may be some downward pressure on EDC spot prices from Q2 2017 onwards.

Post-2017, a number of mercury-based chloralkali plants are expected to close down. Producing caustic soda and chlorine using mercury cells was declared outside best available techniques (BAT) in 2013, with the legal deadline for the phasing out of capacity in Europe set for December 2017.

As a result, European EDC capacity is likely to fall from 2017-2018 with operating rates at the remaining capacity expected to slightly increase. Depending on run rates, this may shift Europe from being a net exporter to a net importer of EDC from 2017 onwards. The US and the Middle East are potential sources of imports to fill the gap in EDC supply going forwards.