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First phase of Shintech's US PVC chain expansion slated to be finished by mid-2021

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First phase of Shintech's US PVC chain expansion slated to be finished by mid-2021

Highlights

COVID-related work slowdowns delayed construction

PVC demand expected to grow steadily: Shin-Etsu

Houston — Shintech expects to finish the first phase of an expansion across the polyvinyl chloride chain at its Louisiana complex by mid-2021, later than expected, company parent Shin-Etsu said.

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Shin-Etsu originally expected to finish construction on the first phase by the end of 2020, put pushed it to Q1 2021 after coronavirus pandemic-related work slowdowns. Executives told investors in late January that construction should be complete by mid-2021, according to a transcript posted on Shin-Etsu's website Feb. 8.

The expansion's $1.49 billion first phase will increase output at the company's PVC plant in Plaquemine, Louisiana, by 48% to 890,000 mt/year. Shintech also will increase vinyl chloride monomer capacity by 34% to 2.37 million mt/year, and increase caustic soda output by 21% to 1.55 million mt/year.

Shintech's construction permit also allows the company to add up to 680,000 mt/year of ethylene dichloride capacity.

The $1.29 billion second phase, to be completed in 2023, will include a separate new 380,000 mt/year PVC plant, which will bring total PVC production at the Plaquemine site to 1.27 million mt/year, Shintech said in a statement.

The second phase also will add another 580,000 mt/year in VCM capacity and another 390,000 mt/year in caustic soda capacity, for a total of 2.95 million mt/year of VCM and a total of 1.94 million mt/year of caustic soda, Shintech said.

"This is a plan that we have been considering and working on for a long time, rather than something that was triggered by the recent strength in demand," Shin-Etsu told investors according to the transcript posted Feb. 8.

Shintech received permits for both phases of the construction in 2018 except for the new PVC plant, for which a permit was granted in January 2021, according to Louisiana Department of Environmental Quality records.

Shin-Etsu said further that the two-phase project also reflects expectations that PVC demand "will steadily increase going forward."

Shin-Etsu also said demand in the last two months of 2020 "was generally so strong worldwide that it was hard to believe we were in the months of November and December," the transcript said.

PVC is a construction staple used to make pipes, window frames, vinyl siding and other products. EDC and VCM are precursors to PVC, and EDC is made when chlorine is reacted with ethylene.

Caustic soda, a key feedstock for alumina and pulp and paper industries, is a byproduct of chlorine production.

Strong PVC demand bucks seasonal decline

US PVC demand typically wanes in colder months when construction activity slows seasonally. However, demand has bucked that trend amid a housing boom fueled by consumers seeking more standalone space as the coronavirus pandemic prompted closures of offices and many schools.

Global PVC demand – and that for its upstream precursors – crashed in April 2020 when pandemic-related shutdowns stymied construction activity and heightened uncertainty of when it would rebound. US export PVC prices fell 39% in six weeks to a 12-year low of $520/mt FAS Houston by the end of April, normally the cusp of the peak summer construction season.

Prices in other regions fell sharply as well in April, as buyers stepped back amid that uncertainty.

However, as shutdowns eased in May, prices began rising as buyers sought to catch up and construction activity resumed. US export PVC prices ended 2020 at $1,450/mt FAS, an all-time high since S&P Global Platts began assessing the market in 1983.

Two hurricanes in August and October and upstream chlor-alkali rates that remained reduced from May through October kept US supply tight, which helped fuel the uptick in pricing for both export and domestic volumes.

Domestic prices fell 8 cents/lb in ($176/mt) April and May to 46-48 cents/lb ($1,014-1,058/mt), a 29-month low at the time. Prices then rose 21 cents/lb ($463/mt) on producer price increases from June through October, ending 2020 at 67-69 cents/lb ($1,477-$1,521/mt).

US export price strength softened in February despite continued supply tightness as global markets stepped back slightly, expecting prices to decline. February prices fell $50/mt to $1,400/mt FAS.

But domestic prices gained another 4 cents/lb ($88/mt) in January as the market accepted yet another round of price increases, rising to 71-73 cents/lb ($1,565-$1,609/mt), a fresh all-time high since Platts began assessing the market in 2001.

Caustic soda prices, however, have been under pressure since 2019 on weak industrial demand. Export prices were last assessed Feb. 2 at $220-$230/mt FOB USG.

Market sources expect that demand to strengthen in the second half of 2021, as COVID-19 vaccinations become more widespread, allowing economic activity to increase, including reopenings of offices and schools that remain closed.

"Caustic soda is used for various applications, so the demand will increase as long as industrial activities increase," Shin-Etsu said.