Brexit and the price of PVC

The majority of hose and tube products made each month by Copely are created using polyvinyl chloride, more widely known as PVC. As a material, it is, in fact, the third most widely produced synthetic plastic polymer globally, after PE (polyethylene) and PP (polypropylene).

PVC has become the material of choice in hoses and many other products as technology has advanced, replacing natural rubber in many applications. What’s made it so successful is the huge array of intrinsic properties it has over other materials, but fundamental to its success as a hose material, is its flexibility, chemical stability and resistance to chemicals.

Why do PVC products not follow the commodity price of oil like other plastics?

We’re often asked why the cost of PVC hasn’t changed as much as other polymers, even when the price of oil dipped below $30 a barrel about twelve months ago – surely they should be linked?

To answer this we just need to take a look at how PVC is actually formulated. And what a lot of people aren’t aware of is that PVC’s principle ingredient is actually salt! Yes, you read that correctly, everyday table salt… well almost. Sodium chloride is mined from rock deposits or extracted from seawater using electrolysis before the purified salt is used in the production of polyvinyl chloride. (Table salt is refined a step further by evaporating it from a brine solution). The ingredients that are used to produce PVC exist in the following proportions:

  • Salt (Sodium Chloride) 57%
  • Natural gas or oil (Ethylene & Naphtha) 43%

This means that unlike most polymers such as polypropylene or polyethylene terephthalate, PVC is impacted a lot less by the increases and decreases seen by the world’s crude oil markets. The diagram below from The European Council of Vinyl Manufacturers illustrates where PVC fits in amongst the up and downstream stages of production:

Source: www.pvc.org/en/p/how-is-pvc-made

What does affect the price then?

As you can see below Naptha prices in 2015 closely tracked those of oil, primarily because one is originated from the other. Naptha doesn’t fall to the extent of Brent Crude, however, this is likely to be due to other external factors including demand from other markets.

Source: www.platts.com/news-feature/2016/petrochemicals/asia-aromatics-olefins-margins/naphtha-crude-oil

PVC is generally affected about half as much as other plastics, because as we’ve identified it relies half as much on oil. In 2015 PVC was further bolstered by higher demand.

Plasticiser

Once PVC resin is made, it needs to be plasticised to give flexibility to the finished product. The price of plasticiser is governed by factors such as demand, capacity and interruptions in supply. For example, an explosion at the BASF Ludwigshafen site last October affected feedstocks in Europe significantly. It was also forecast to have a 1-3% negative impact on the group’s EBITDA (earnings before interest, tax, depreciation and amortisation).

What does Brexit mean for the price of PVC?

We’re still unsure as to what the future will look like for the UK outside of the EU. Press coverage on the subject seemed to reach fever pitch towards the end of 2016. However, it has only gained momentum in the New Year, with debate peaking in recent weeks as the bill makes its way through parliament. Amendments to the 137-word bill to trigger ‘Article 50’ were, of course, defeated in the House of Commons, suggesting it’s more likely the UK will experience a ‘hard Brexit’ from the EU.

Whatever your political stance, it’s clear to see that there will be many potential opportunities and threats to face over the coming two years of negotiations, and in the UK’s final position thereafter.

Since the referendum last June we’ve seen the Pound’s value fall from a peak of £1.48 against the Dollar to as low as £1.20 in mid-January. It has rebounded slightly when the UK government expanded on their plans somewhat but remains around 14% down on this time last year, and a whopping 40% down on the heady heights of a decade ago.

Both PVC resin and plasticisers are commodity polymers which are traded in Euros or Dollars. With the unpredictable exchange rates seen recently, this is also likely to continue to influence price.

A weaker Pound is good for exports, which have been reportedly surging in the last six months across the UK economy, however, it does mount pressure on businesses that import most of their goods.

Read more of our articles