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Regulatory Changes Impact Europe’s Chlor-Alkali Vinyls Market

European chlor-alkali/vinyls industry (CAV) faces rapid consolidation as well as regulatory changes introduced by the European Union. These regulatory changes require chemical producers to either convert mercury cell-based chlorine plants to a more environmentally friendly membrane technology or shut down the technically obsolete plants altogether by December 2017.

The regulatory mandates, in addition to increased mergers and acquisitions in the European CAV marketplace, will likely lead to some closures of older plants and continued consolidation. However, the facilities that survive the transition stand to enjoy higher operating rates, increased market share and greater profitability, according to analysis from global information company IHS Inc. “With the recent regulatory changes and an accelerated consolidation, we expect that these market shifts will have a positive impact on the market in the long-term, but in the short-term, some chlor-alkali and vinyls producers will experience difficulty. The European industry is at a tipping point and we anticipate even more changes, but in general, the future looks brighter”, said Michael Smith, vice president at IHS Chemical.

According to the Chlor-Alkali BREF document issued by the European Union, before 11 December 2017, the use of mercury cell technology in chlorine production must be shut down, which will affect roughly 20 percent of the total European capacity. This change will require several industry producers to undergo a major process conversion from mercury cell technology to membrane technology, which has fewer environmental risks than mercury, or close their obsolete facilities. Western Europe will be the most impacted region due to this technological transformation, according to IHS, experiencing a reduction of an estimated 1.8 million metric tons in chlorine capacity by 2018. Producers in Central Europe also will be impacted—experiencing an estimated 0.6 million metric tons in production capacity declines. As a result, these changes also will force the region’s producers to adapt rapidly or exit in the mid-term.

Besides the regulatory and technological changes being experienced by the industry, chlorine, caustic soda and PVC markets also will see slower new capacity growth going forward, according to IHS Chemical forecasts. However, at the same time, global construction is reviving and Europe is slowly turning the corner. Western Europe, Smith said, is expected to remain a net-exporter of PVC for the foreseeable future, while the Turkish PVC market will continue to experience robust domestic demand growth for the next five years.

Merger and Acquisition Activity

Europe’s two largest integrated CAV producers – Ineos and SolVin – recently joined forces to create an even more dominant market leader called Inovyn, which will be roughly two-and-one-half times larger than the next largest competitor in the region. Also, during the summer, Westlake Chemical, a U.S. producer, bought German-based Vinnolit, a well-established technology leader with substantial, exportable in-house expertise especially for paste PVC.

In a similar recent move, Mexican producer Mexichem bought the other German producer, Vestolit. Mexichem also owns the former PolyOne Specialty PVC assets in the U.S. With the Vestolit purchase, the company expands its presence in the specialty PVC market, in particular, and makes it a leader in specialty PVC resins, including paste PVC.

“The European chlor-alkali/vinyls industry faces a flurry of merger and acquisition activity, bringing more international investment into the European market. As a result, IHS expects that Europe’s PVC business will continue to consolidate even further. Now could be the perfect time to acquire assets in Europe”, Michael Smith said.

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