USES

Vinyl chloride monomer (VCM) is a colourless gas with a mildly sweet odour that is toxic and a human carcinogen. It is used almost exclusively (90% plus) in the manufacture of polyvinyl chloride (PVC), though some goes to produce polyvinylidene and several chlorinated solvents. The majority of PVC, a durable and widely adaptable plastic, goes to end-uses with demand connected to construction. VCM demand is directly related to PVC demand and construction activity.

SUPPLY/DEMAND

Global production capacity of VCM is about 55m tonnes/year with about half of global production and demand in Asia. Europe has production capacity of more than 10m tonnes/year, the Middle East about 2m tonnes/year and Latin America approximately 3m tonnes/year. Additional capacity in the US is being added to the current 8.55m tonnes/year to capitalise on cheap shale gas feedstock from ethane. Demand growth has been pretty steady at about 3% as US and global construction activity continues to recover towards levels prior to the 2008-2009 real estate construction bubble. Shintech expanded capacity by 300,000 tonnes/year at its 1.6m tonne/year VCM plant site in Plaquemine, Louisiana, in 2016. Efforts by Mexichem, in partnership with Mexican state oil company Pemex to boost VCM output at its plant in Veracruz, Mexico, ended with an explosion at the 330,000 tonne/year plant early in 2016. Late in 2017, word came that the plant will not be repaired and returned to production. In early 2017, the Mexichem 50/50 joint venture with Occidental Chemical (OxyChem) launched production at their 544,000 tonne/year ethane cracker at Ingleside, Texas. It is operated by OxyChem to produce VCM for Mexichem’s PVC plants in Mexico and Colombia through a contracted sales agreement. That has lifted US VCM exports with additional US shipments.

PRICES

US VCM prices pushed higher in early 2018, as they tend to follow the value of derivative PVC rather than raw materials costs for feedstock ethylene dichloride (EDC), as is the case with most chemical commodities. Most VCM is used internally by back-integrated producers of PVC with little spot sales activity. VCM spot prices have fluctuated with crude oil, a key price driver for PVC in global markets because most PVC in Asia and Europe is made from feedstock naphtha, derived from crude. US VCM prices fell to the low $600s/tonne mid-year, and then rose to almost $690/tonne at the beginning of 2018. Rising PVC demand domestically is expected to help push prices up during 2018, as well. In the US, ethylene feedstock is mainly derived from ethane from new and existing crackers. That gives US producers a global production cost advantage, along with producers in the Middle East.

TECHNOLOGY

Commercial production of VCM began in the 1920s based on the catalytic hydrochlorination of acetylene. That route suffered from high energy costs and is now obsolete everywhere but in China, where ample coal supplies have kept the cheap alternative going. Nearly all production outside of China is based on ethylene. Ethylene is first reacted with chlorine to make EDC and then thermally cracked to make VCM. Today there are two routes commonly used to make the necessary EDC – direct chlorination using pure chlorine and ethylene; and oxychlorination, in which the ethylene reacts with chlorine in hydrogen chlo
ride. The EDC is then converted to VCM by thermal cracking, and the hydrogen chloride byproduct can be recycled to an oxychlorination plant to make more EDC. INEOS Vinyls made a more recent breakthrough with its catalytic process for generating VCM directly from ethane, following tests at a pilot plant at Wilhelmshaven, Germany. The company claims a 20-30% reduction in production costs across the PVC chain for the process, which decouples VCM/PVC production from the naphtha cracker.

OUTLOOK

The construction industry is a key consumer of VCM through its derivative product PVC, and it continues to recover globally, forecast to expand by 2.8-3.5% in 2018. But revisions to that forecast have been more bullish after nearly flat GDP growth  in several global regions and key highgrowth countries, including Brazil, Russia and China. The short-term outlook is that VCM  demand will continue to grow at slightly better than macroeconomic growth, or about 3-3.5% annually.