+1 - Solvay

Plastics Sector
Despite considerable capacity
increases, mainly in China, global
supply remains tight, in particular in
Europe and Mercosur, across the
entire vinyls chain, including raw
materials (ethylene, dichloroethane
EDC, VCM, etc.).
PVC prices have developed
unevenly from one region to the
next as a function of supply and
demand, and of raw-material and
utility prices.
In Asia, sales prices and margins
recovered strongly in 2007 with
weakening Chinese competition
in export markets, linked to rising
Chinese production costs. All
regions with the exception of
the USA have benefited from a
favourable supply and demand
situation that has enabled us to
keep margins high.
The earnings of the vinyls chain
reached a record in 2007, slightly
above the excellent levels of the
past three years. It owes this
performance to its geographic
diversification and its regional
leadership in Europe+Russia,
Mercosur and South-East Asia.
In Europe, SolVin (a 75/25
Solvay/BASF joint venture) enjoys
an excellent competitive position
that is strengthening every year.
Costs were reduced in 2007 by
the restructuring of the Tavaux
(France) site, which involved
decommissioning an old PVC unit
and replacing it with a new unit
incorporating the highest performing
technology. It was also decided
in 2007 to expand VCM and PVC
capacity at Jemeppe (Belgium),
bringing the site up to an integrated
capacity of 500 kt/year of PVC
from mid-2009. This investment will
make us even more competitive
and enable us to keep up with
growing demand in Europe.
SolVin’s results have fully
benefited from this increased
competitiveness.
Demand from Eastern Europe
has also been strong, indirectly
sustaining demand in Western
Europe through sharply rising
imports of semi-finished products
(profiles, floor covering, piping and
fittings). Another factor buoying up
demand has been the shortage of
PVC resins in the rapidly growing
Russian market.
In June 2007 SolVin signed a joint
venture agreement with Sibur to
set up the RusVinyl company and
build an integrated 330 kt/year PVC
plant (extendable to 500 kt/year)
at Kstovo (Russia). This investment
will consolidate SolVin’s regional
leadership in Europe with Russia,
a country which is experiencing
strong growth and which offers
competitive advantages in terms of
raw materials and utilities. This new
unit is scheduled to start production
in mid-2010.
In Mercosur, the Brazilian and
Argentine markets served by
Solvay Indupa (a listed
Argentine company in which
Solvay has a majority shareholding)
also enjoyed very favourable
market conditions. Improved
competitiveness in Brazil with the
new VCM expansion and smoothly
operating plants have been key
factors in new record results right
along the vinyls chain.
After an initial expansion of our
Brazilian chlorine, NaOH, VCM
and PVC capacities at a cost of
USD 150 million, approved in June
2006, a second expansion phase
was approved in December 2007.
Costing USD 135 million, this is
intended to allow us to keep up
with rapidly growing demand in the
region and to further consolidate
the competitiveness of our Brazilian
site. Phases one and two are
scheduled to come into production
in mid-2008 and mid-2009.
Phase two will bring the plant to an
integrated PVC capacity of 360 kt/
year and will include the production
of ethylene from cane sugar. In
this way, PVC will be produced
from renewable raw materials. In
collaboration with the Albanesi
company, a feasibility study has
been launched in Argentina for
a 160 MW electricity generating
station to consolidate the electricity
supply to our Bahía Blanca site.
In Asia-Pacific, large new units
coming into production in China
engendered heavy nominal
overcapacity. However, the sharp
rise in costs of the obsolete
carbide/acetylene technology
and the authorities’ increased
environmental concern has
significantly weakened Chinese
producers’ competitiveness.
Additionally, strongly rising demand
in the region has absorbed the
Chinese overcapacity faster than
expected.
Despite this difficult environment
and major price rises for raw
materials and utilities, Vinythai
(a Thai listed company in which
Plastics
“ In Europe, SolVin enjoys
an excellent competitive
position that is
strengthening every year.
”
47
Solvay Global Annual Report 2007