The largest PVC manufacturer in the United States is forced to reduce production!
Recently, according to a report by Chemical Weekly in the United States, according to a federal court document released in mid June, the largest producer of Polyvinyl Chloride Resin (PVC Resin) in the United States, Japan's Shinyue Chemical Company, is suing one of its key raw material suppliers due to a contract dispute.
This may cause PVC powder to be forced to reduce production and result in daily income losses of millions of dollars.
In the middle of April, Shinyue Chemical sued Olin, a chlor alkali producer, and Blue Cube, a subsidiary of Olin, claiming that they violated the contract for supplying vinyl chloride monomer (VCM) to Shinyue Chemical's 1450000 ton/year PVC resin complex located in Free economic zone, Texas.
According to court documents, Olin provides 50% of VCM required by Shin Vietnam Chemical Free economic zone Factory. Rob Steele, senior director of global petrochemical products of S&P Global Commodity Insight, said that if Olin cut off the supply, Shinyue Chemical would have to halve its production of PVC powder in Free economic zone, Texas, which would result in a loss of 725000 tons/year of supply in the PVC resin market, accounting for 8% of the U.S. production. If Xinyue Chemical has to significantly reduce production, the export pressure on American pvc resin manufacturers may ease, which may stabilize or increase the PVC resin prices that have been declining since mid-2022, "Steele said.
Xinyue Chemical stated in court documents that its Texas business will "come to a standstill", which will harm its profitability and reduce the company's market share.
Since the rise in interest rates and high inflation in May 2022 began to weaken domestic housing construction demand in the United States, the export of pvc resin powder in the United States has grown significantly, as PVC resin is a synthetic resin used to manufacture pipes, window frames, and other building products. According to the latest data from ITC in the United States, in the first five months of 2023, the export of PVC resin powder in the United States surged by nearly 60%, reaching 1.36 million tons, compared to 855000 tons in the same period the previous year.
In the lawsuit, Shinyue Chemical said that the interruption of Olin's VCM supply to its Free economic zone business in Texas would be devastating to the company's business and would "bring the state business to a standstill". In 2022, the production capacity of PVC resin powder in the United States was 8.98 million tons/year, while the production capacity of Xinyue Chemical was 3.24 million tons/year, accounting for 36% of the PVC resin share in the United States.
Xinyue Chemical also stated that according to market conditions, the company faces daily revenue losses of $2 million or more, as well as reputation damage, and must explain shortages or delayed shipments to customers. It is said that Olin Company provides 50% of the VCM supply of Xinyue Chemical Free economic zone PVC resin factory, and the rest is supplied by its Prakmin PVC resin powder complex in Louisiana. Olin countered that Shinyue can obtain VCM from other domestic and international sources, including its Japanese parent company.
In this regard, Steele of S&P Global said that there are few VCMs available or available in stock in the market, because VCMs have almost no other use except for the production of PVC resin powder, and the vast majority of American VCMs are sold in the form of contracts. Xinyue stated that Olin is the only VCM seller in the United States, and its VCM sales to Xinyue are also contractual supply.
Therefore, market sources said that Xinyue had limited options to provide 50% of its Free economic zone PVC resin business, and no other seller could provide enough VCM. According to Procter&Gamble data, the latest estimated spot export VCM prices for the United States on July 11th were 425-435 US dollars per ton (FOB Gulf of Mexico), while the domestic VCM prices for the United States were 59.5 to 61.5 US cents per pound.
