22:13 PM | June 10, 2013 | Robert Westervelt
Shintech, the US subsidiary that anchors Shin-Etsu’s leading global position in polyvinyl chloride (PVC), celebrates in 2013 its 40th year of operation. The operation started as a small joint venture in 1974, with a 100,000-m.t./year PVC unit at Freeport, TX, which made it the 13th largest US PVC maker at that time. Shintech now produces more than 2.6 million m.t./year of PVC with a leading 36% US market share, according to Shin-Etsu.
Shin-Etsu chairman Chihiro Kanagawa, 87, was the company’s general manager responsible for overseas operations in 1974 and played critical roles in the formation of Shintech and managing the growth that has taken capacity up 26-fold over the past 40 years. Kanagawa served as Shin-Etsu CEO from 1990 to 2010 and today remains company chairman and an active participant in the management of Shintech and Shin-Etsu’s PVC operations. “I think of Shintech as my brainchild,” Kanagawa tells CW.
PVC is Shin-Etsu’s largest segment, accounting for 31% of 2012 revenues of ¥1 trillion ($12.2 billion). Roughly 70% of Shin-Etsu’s PVC production is produced at Shintech’s US operations. Shin-Etsu was among the first Japanese chemical makers to invest heavily outside of Japan—primarily because of Shintech—and more than 65% of revenues today are from outside Japan.
In the early 1970s, Shin-Etsu was approached by Robintech, then a relatively small US PVC maker, about licensing PVC technology used at Shin-Etsu’s Japanese PVC operations. Shin-Etsu was reluctant to license technology, and Kanagawa instead pushed to form a 50-50 PVC jv that would build a unit at Freeport in 1974. Shin-Etsu acquired Robintech’s interest in 1976 and has aggressively expanded since.
“I knew at the time that PVC was a good product,” Kanagawa says. “It has good processability and application characteristics. I was convinced it would grow, and that forecast was correct. I hoped we would become number one but could not have expected it at the time.”
Freeport remained Shintech’s primary production base for nearly 35 years, with Dow Chemical supplying vinyl chloride monomer (VCM) under a long-term agreement. Since 2008, Shintech has operated an integrated chlor-alkali and vinyls complex at Plaquemine, LA, which is now Shin-Etsu’s US base for future growth and expansion. The Plaquemine facility started production in 2008 with 450,000 tons/year of chlorine; 750,000 m.t./year of VCM; and 600,000 tons of PVC. In 2011, the company expanded VCM by 800,000 m.t./year and chlorine by 500,000 tons/year.
The 2008 start-up coincided with the collapse of the US housing market, depressing PVC demand. Shintech has continued to run at full capacity and sell 100% of available production. US demand remains weak, but exports have soared thanks to the low-cost production and feedstock position enabled by US shale gas. “Our basic policy is that any and all product we can produce must be sold,” Kanagawa says. “It’s a clear and simple policy.” Shintech’s low-cost position allow it to remain profitable even in depressed market conditions. Shin-Etsu does not disclose profits for Shintech but says the unit’s profit doubled year-on-year in 2012.
Kanagawa says that Shintech produces PVC for half of what it costs the company to make PVC in Japan. “And shale gas has made the business even more competitive,” Kanagawa adds. “It is a heaven-sent opportunity. I am very thankful.”
Shintech has steadily expanded over 40 years to build its leading market position. “Although we haven’t decided to advance expansion for Shintech, we are preparing for it,” Kanagawa says. “If demand increases and we feel certain we are able to sell product, we will advance.
Kanagawa adds, “[I support] expansion whenever I am convinced that we will be able to sell under reasonable terms. That’s my basic philosophy. It’s been the same for 40 years, and we are now the number-1 PVC producer.”
The company is now integrated through chlor-alkali at Plaquemine but continues to source ethylene for PVC production through long-term supply contracts. “We are satisfied today that we can obtain ethylene under reasonable conditions,” Kanagawa says. “If we need to, we can produce ethylene for ourselves. Technology is widely available. It is a substantial investment, however. As long as we are satisfied [with our suppliers], I am happy to avoid that investment in ethylene.”
Low political risk, advantaged feedstock costs, and logistical advantages have made the United States a favored investment location. Kanagawa says the prospects PVC and future growth in the the country are as strong as ever. “I am thankful for shale gas,” Kanagawa says. “The US will be very successful as a result.”