New York November 6 2021: OxyChem, the chemical division of Occidental Petroleum, expects polyvinyl chloride demand to remain strong rather than wane seasonally as was typical before repeated bad weather events hit production in 2021, CFR Robert Peterson said Nov. 5.
"What we see today in the chemical business is still very strong conditions in our vinyl business and steady improvements in the caustic business," he said during the company's third-quarter earnings call. "Typically, we're normally entering into a seasonally slower period of time, but we're just not seeing that thus far."
He said supply entered 2021 tight, then lost nearly two months of production when a deep freeze hit the US Gulf Coast in mid-February, forcing widespread petrochemical shutdowns, including at least 57% of US PVC capacity.
Then Hurricane Ida hit Louisiana in late August, forcing about 41% of North American PVC capacity offline. Days later, when Shintech had to shut its 1.45 million mt PVC unit in Texas after a third-party upstream vinyl chloride monomer unit shut on an equipment failure, pushing the total North American PVC capacity offline to 59%.
Peterson said the combination of those two weather events, coupled with strong demand for PVC, other chlorine derivatives, and caustic soda, "has kept the supply/demand balance much tighter than anticipated or typically historically."
PVC is a construction staple used to make pipes, window frames, vinyl siding, and other products. Chlorine is the first link in the PVC production chain, and caustic soda, a byproduct of chlorine production, is a key feedstock for alumina, pulp and paper.
Peterson said domestic PVC demand was up 13% so far in 2021 compared with January through November 2020, which includes a sharp increase in housing construction demand halfway through 2020 as coronavirus-related shutdowns eased.
He said construction demand remains strong while inventories remain low. US PVC exports in 2021 fell by one-third compared with 2020, despite the demand crash in April and May of 2020 amid the height of coronavirus shutdowns, because discretionary resin is " just not available," he said.
Peterson said US PVC exports have been largely fed contract customers, while the amount of PVC that would normally be sold into export markets on a spot basis has shrunken so producers can feed strong domestic demand.
"That's kind of atypical for this time of year, but we do see it continuing through the balance of the year," he said.
Export PVC was last assessed at $2,060-$2,070/mt FAS Houston Nov. 3, an all-time high since S&P Global Platts began assessing the market in 1983. Domestic PVC was last assessed the same date at 93.5-95.5 cents/lb ($2,061-$2,105/mt), also a record since Platts began assessing that market in 2001, as buyers consider 5 cents/lb/$110/mt) price increases sought by all four US PVC producers.
PVC prices seen retreating as supply increases
Market participants expect export PVC prices to retreat in the coming weeks if more supply becomes available through Shintech's expansion startup before the year end at one of its Louisiana complexes and a seasonal decline in construction activity during colder months.
"What we don't have a flavor for is how much people are going to want to restock inventories to be ready for what looks like another strong spring construction season, which will return pretty early in the year next year," Peterson said.
On upstream chlor-alkali, he said chlorine supply remains tight as producers seek the best value for it, whether that be production of PVC or other chlorine derivatives, such as hydrochloric acid, polyurethane foam, refrigerants, and other products.
Caustic soda demand has surged in 2021 with the return of large gatherings at sporting events and concerts, increased travel, and returns to offices and schools, all of which hiked demand for paper products and aluminum.
"We're seeing a lot of pent-up demand still coming back as things somewhat return to normal on the backside of the pandemic," Peterson said.
Occidental reported net income of $628 million, up from a $3.77 billion loss in the year-ago quarter. The chemical division reported net income of $407 million, up from $178 million in Q3 2020, its strongest results since 1990, CEO Vicki Hollub said.