Recently, two domestic chemical companies deeply involved in the chlor-alkali chain agreed to merge their participation in this area to create a formidable competitor in the production of PVC, other chlorine derivatives and caustic soda. In a transaction valued at $ 2.1 billion, PPG industries agreed to put its chlor-alkali business into Georgia Gulf, one of our largest PVC producers, to form a $ 5 billion company. An interesting sidelight to this is that several years ago, Georgia Gulf was essentially bankrupt as a result of a large acquisition in PVC building materials that occurred just before the housing slump, which for a while deeply hurt the market for PVC pipe, shutters, window frames, roof and floor tiles and decking. Now, a few years later, Georgia Gulf is on its feet and will now be competing on an exceptionally sound business basis. You could say that inexpensive natural gas is an important reason for this phoenix-like rise of a company from the ashes. Read on!
The production of PVC starts with a plant that electrolyzes salt to make chlorine and caustic soda (alkali). The chlorine is reacted with ethylene to produce ethylene dichloride which is then dehydrogenated to vinyl chloride which is polymerized to polyvinyl chloride(PVC). Of these steps in the production chain, the most profitable (for producers) are the electrolysis and the production of ethylene. We noted in earlier posts (see also my TEDx speech on American competitiveness) that the advent of cheap natural gas has made the U.S. one of the lowest cost global producers of ethylene. But our historically low gas costs have also made the U.S. essentially the lowest cost global producer of chlorine and caustic soda, since electricity rates on the Gulf Coast are largely based on natural gas prices.
Interestingly, PPG, which contributed its very large chlor-alkali business to Georgia Gulf, ended up with majority control of that firm because of the very high value of its electrolysis business. Now, as the country starts coming out of its housing slump, Georgia Gulf is primed to become a leading, economically highly viable producer of PVC, fully integrated downstream into the many PVC commercial and consumer products.
I have a personal (though not financial ) stake in all this. My team, in 2006, helped Georgia Gulf acquire Royal Group Technologies, the Canadian downstream PVC producer, as part of a long range plan, but the timing was wrong. Now, cheap shale gas has come to the rescue and Georgia Gulf should achieve its full potential.