The exit of European production capacity may reshape the global PVC trade pattern

In recent years, China's PVC industry has faced overcapacity, with prices remaining low for a long time. With the commissioning of nearly 1.4 million tons of new production capacity in the third quarter of this year and the announcement of India's anti-dumping final ruling, market sentiment has become increasingly pessimistic. Although the current Chinese PVC market shows a supply-demand imbalance, Europe is experiencing capacity clearance, so there is no need for excessive pessimism from a medium-to-long-term perspective.  

The European PVC chlor-alkali industry is facing multiple pressures, including high costs, aging equipment, low capacity utilization, and declining demand, which are quietly rewriting the global PVC supply pattern. The supply-demand and trade landscape of PVC may be reshaped in the next 3-5 years:  

#### 01 High raw material and energy costs in Europe, with ethylene costs more than three times those in the U.S.  
- More than 90% of ethylene in Europe is externally purchased. In 2023, the production cost of ethylene in Europe was more than three times that in the U.S., making it the highest in the world.  
- European ethylene production relies mainly on oil cracking, unable to compete with alkane-based production in the U.S. and the Middle East.  
- European energy costs are high, with natural gas prices 3-4 times those in the U.S. PVC production capacity in Europe is mainly concentrated in Germany, France, the Netherlands, Belgium, and other countries, where electricity costs exceed 1 yuan per kWh (converted to RMB), with Germany even exceeding 1.5 yuan per kWh—more than three times that in northwestern China.  
- As a major raw material for PVC, Europe's ethylene industry faces overcapacity of more than 4 million tons due to weak demand. The industry's average operating rate in 2024 was only 74%, far below the long-term average of 81%.  
- Relevant reports indicate that Europe withdrew over 1 million tons of capacity in 2024 and plans to shut down another 4.6 million tons from 2025 to 2027. The integration of ethylene capacity in the coming years is likely to push up price centers in Europe.  

#### 02 Aging equipment and low operational efficiency in Europe  
- European chlor-alkali plants generally suffer from aging, backward technology, and low capacity utilization, which have become core constraints on industry development.  
- The European chlor-alkali industry has long relied on early-built electrolysis plants, with some enterprises still using mercury or diaphragm processes. Overall equipment updates have lagged far behind Asia and North America. Most chlor-alkali plants in Europe were built in the 1970s-1980s, with a few from the 1960s still in operation, and few new constructions or technological transformations since the 1990s.  
- Europe's chlor-alkali capacity utilization has long been low. Data from 2023 to 2025 show that the average utilization rate of European chlor-alkali plants generally ranges from 60% to 70%, far lower than China's around 80%.  

#### 03 Tightening environmental regulations and strict carbon emission policies in Europe  
- The EU has implemented multi-level and high-standard environmental regulations for the chlor-alkali industry, including REACH regulations, Industrial Emission Directives (IED), and mercury elimination orders. As a high-power-consuming industry, chlor-alkali is included in the EU Emissions Trading System (ETS), requiring enterprises to purchase carbon emission allowances, directly increasing high-carbon emission costs.  
- From 2026, the EU will impose a carbon border tax on imported products, with chlor-alkali and its downstream products (such as PVC) possibly included, strengthening "dual supervision" of carbon emissions for both domestic and imported products and further compressing the competitiveness of local capacity.  
- Under current policies, the additional costs for the European chlor-alkali industry due to carbon emissions and environmental compliance range from 22 to 38 euros/ton of chlorine (direct CBAM costs, approximately 183-316 RMB/ton). Including the carbon border tax, the cost increases to 55-80 euros/ton of chlorine (comprehensive CBAM + EU ETS costs, approximately 458-666 RMB/ton).  

#### 04 Leading European chemical giants cutting capacity  
- In recent years, especially after the Russia-Ukraine conflict, soaring energy prices have led leading European chemical giants to collectively reduce capacity and shut down factories due to high raw material and energy prices and surging environmental costs.  
- In July 2025, the Dutch company Vinova announced the closure of its 225,000-ton/year PVC plant.  
- BASF's 170,000-ton chlorine capacity in Ludwigshafen, Germany, will be shut down by 2028.  
- Dow Chemical also announced the closure of multiple PVC-related units in Germany and the UK between 2026 and 2027, including the 390,000-ton VCM capacity at the Schkopau chlor-alkali plant and the 1 million-ton chlorine capacity using asbestos diaphragm process in Stade, Germany.  
- In July 2025, Arkema Jarrie in France announced a restructuring, immediately halting its chlorine, caustic soda, and chloromethane production lines.  
- In the second half of 2025, Europe may further integrate capacity, with small and non-integrated PVC plants facing closure, weakening Europe's position in global PVC supply.  

#### 04 Summary  
- As European capacity exits, Europe will transition from a net exporter to a net importer, forcing downstream industries to accept higher CIF prices. Part of the capacity will relocate abroad, shifting the global supply center to Asia and North America.  
- The U.S., China, and the Middle East will replace the EU as new supply hubs for caustic soda and PVC due to cost advantages.  
- Although the domestic PVC market will remain weak and oversupplied in the short term, the domestic trade pattern is expected to show a situation of "simultaneous increase in volume and price, with internal and external differentiation" in the coming years. The cross-regional flow of global chlor-alkali will reshape the PVC trade landscape.