The vinyl alkaly supply chain starts with salt as raw material. Through a series of intermediate manufacturing processes and the addition of ethylene, another raw material, a plastic widely referred to as PVC ー Poly Vinyl Chloride is created. PVC is widely used as raw material for the manufacture of a variety of household and consumer industry products.
The main characteristics of PVC are its impermeability and its hardness; it does not leak, and the plastic itself does not leach its own chemicals into the surrounding environment. This makes it very suitable for the manufacture of plastic pipes used in the building and construction industries, cable, film and sheet, etc.
In its raw form, it is sold as a white powder but can very easily be changed through the addition of other chemicals and colourants, to meet a wide variety of consumer and industrial requirements. In addition, the vinyl alkaly supply chain produces a significant amount of caustic soda, which is not utilized in the supply chain and is sold to textiles, pulp, food, and consumer products manufacturers.
Asia is the growing region in the world where caustic soda is utilized and demanded.
Manufacturing Process
Chlorine gas and caustic soda are produced by the electrolysis of salt solution. One cannot be formed without the other.
With the addition of ethylene, the chlorine gas is used to manufacture Ethylene Dichloride (EDC), which in turn, is used to manufacture VCM ー Vinyl Chloride Monomer.
VCM is the raw material that goes through a polymerisation process with the aid of a catalyst, to form PVC in its white powder form.
All products from these manufacturing processes are either sold into the market place to be used as raw materials in other manufacturing processes or are consumed within this manufacturing process.
This is a manufacturing supply chain where the product from one company is used as a raw material for the manufacture of another product. SAU, SIM and SIP are not only linked by the manufacturing cycle but physically and operationally linked, to the extent that pipelines connect one plant to the other for the transfer of materials. These plants also share common infrastructure services.
This supply chain allows for greater manufacturing efficiency and lowers costs, but it also creates a greater dependency of one plant upon the other. However, SIP can continue manufacturing or be stopped independently due to the availability of an intermediate buffer stock of VCM.
This is a manufacturing supply chain where the product from one company is used as a raw material for the manufacture of another product. SAU, SIM and SIP are not only linked by the manufacturing cycle but physically and operationally linked, to the extent that pipelines connect one plant to the other for the transfer of materials. These plants also share common infrastructure services.
This supply chain allows for greater dependency of one plant upon the other. However, SIP can continue manufacturing or be stopped independently due to the availability of an intermediate buffer stock of VCM.
PVC World Wide
PVC is a very versatile material and in great demand in most areas of the world. Europe has developed its own manufacturing to the extent that supply/demand is in equilibrium. The USA and Middle East have excess supply built with a view to satisfying excess demand in Asia. The developing economies within Asia have created a large growing demand for PVC, especially in China, which to some extent is met by the large production capacity in Japan, South Korea and Taiwan.
PVC manufacturing, like many chemicals commodity, is very cyclical in nature and has a direct effect on product pricing. When demand for PVC is high, companies invest in the building of new plants. Some of this new production capacity is built with a view to satisfying local, in-country demand, as in Indonesia, to reduce the demand for raw material imports.
The rush to build new plants creates excess capacity that in turn drives down prices and stops the investment in new plants. This cyclical nature of the business is a very common phenomenon and the cycle duration tends to be somewhere between five to eight years.
Industry Mergers and Acquisitions
The economic downturn as well as the forced closure and postponement of new plants have attracted many companies to extend their business operations through mergers and acquisitions (M&A). In some cases companies hoped to pick up bargain assets through ‘fire sales’ but there are serious buyers who see this as an opportunity to break into new geographic markets that might originally have been closed to them. This process continues today.
The M&A activities have also proceeded along the lines of consolidations and companies focussing upon core businesses. This has led to the creation of mega businesses e.g. BP/Amoco, Shell/Montell/BASF (for polyolefins, polyetheline and polypropelene) and to some companies declaring certain businesses being non-core and therefore putting them up for sale e.g. Shell PVC business.
The Industry in Indonesia
Caustic Soda
Caustic soda is a much used product in Indonesia in the industries of bath soap, detergent, textile, monosodium glutamate (MSG), pulp, viscose rayon staple fibers (VRSF), food, etc. There are 14 companies in Indonesia producing caustic soda with a total production capacity reaching 617,600 DMT (Dry Metric Tonnes) per year. With such a large production capacity, the existing producers are already able to meet all the needs of the local market. Therefore, the excess capacity needs to be exported or the manufacturers need to scale back to avoid a shut down. The local demand for caustic soda has dropped to approximately 480,000 DMT but is forecasted to increase again to approximately 590,000 DMT by the year 2001. Producers of caustic soda and their capacities in Indonesia are outlined below:
Consumption of Caustic Soda (local Market) 1997
