PVC demand has remained weak in 2009 following collapse in consumption in H2-2008 as the weak economic outlook continued to restrict activity within the key construction sector. Before the onset of the economic crisis, accelerated growth was seen in PVC demand, driven by construction activity in developing economies. Pre 2008, energy exporting regions such as Eastern Europe and the Middle East embarked on major infrastructure projects, coupled with an emerging middle class in many Asian countries that led to vast expansion of housing and urban infrastructure - this drove PVC consumption growth- growth was seen at double-digit rates in regions such as China. The construction and building sector activity in Europe and North America has been dramatically reduced after the financial crisis. Demand growth was negatively impacted in 2008 in China- the global PVC demand driver but in 2009 the government’s economic stimulus packages buoyed consumption leading to positive growth return. In 2010, it is consumption growth in developing economies that will prove vital for global PVC producers on fears of extension of the current slowdown as governments in North America and Europe cut spending to restore extensive deficits in national accounts. This is analysed in Nexant’s Vinyls Chain Market Dynamics report. In recent years, environmental and safety issues as well as substitution by polyethylene have negatively affected PVC consumption. Several countries have legislated against the use of plasticised PVC in children's toys. Consumption in food packaging has also declined as a result of better cost-performance of other polymers. In addition, some substitution by polyolefins in cable and wire applications and certain construction uses have eased growth in some segments. However, cost competitiveness of PVC in the key construction sector growth is expected to sustain growth. High consumption growth in populous nations such as China and India will make Asia the major driver of global PVC consumption growth. Though consumption in USA has been declining since 2004, growth in Mexico and a recovery in US demand will support future growth rates in North America. Western Europe will show the lowest growth, due to the already high per-capita consumption, and low GDP growth outlook. Growth in Eastern Europe and the Middle East is running at very high rates due to oil wealth, while demand in South America will benefit from high GDP growth and infrastructure development. Regional capacity development shows considerable variation due to sharp differences in consumption outlook and production costs. Low growth and high energy prices make investment in North America and Western Europe unattractive. Capacity development in China is proceeding rapidly due to the massive demand growth and the relative attractiveness of coal based production. Other Asian countries show minimal development due to the lack of competitively priced feedstock and abundance of installed capacity. Some major capacity developments are underway in North America, which have proceeded despite the ongoing contraction in domestic demand. Much of this new supply will be for export. The ongoing capacity development in China is unprecedented. Capacity has expanded from 5 mln tpa in 2003 to over 15 mln tpa in 2009, comprising almost 90% of total global capacity expansion over the period. Despite legitimate environmental concerns, relating both to massive carbon emissions and mercury pollution, the development of acetylene based capacity in China shows no sign of slowing. The government’s effort to restrict the construction and expansion of less efficient, environmentally hazardous plants has had little impact on the overall pace of development, although has perhaps prevented some sub-scale projects from moving ahead. While coal/acetylene technology has been progressively replaced by ethylene-based production in other regions, coal based production in China has been encouraged as it does not require imported feedstock, or compete for the limited supplies of ethylene. The required feedstocks- coal and limestone are concentrated in the Western part of China, which are comparatively underdeveloped. Industrial activity there is subsequently inexpensive, and provides economic growth in otherwise isolated areas. The pace of capacity development in the Middle East has been slow because of the lack of local consumers for the caustic soda by-product from chlorine production, and the availability of more attractive investment opportunities in olefins. The higher long-term global energy pricing environment has however brought the focus back onto the ethylene and power cost advantages in the region, leading to new interest in projects. Regional demand growth has also outpaced previous expectations, providing a much larger domestic market for new entrants to sell into. Operating rates have fallen sharply in recent years as capacity increased while demand has fallen. Further capacity additions in Asia, East Europe and the Middle East will hold operating rates at the current low levels through 2010, before beginning to recover in 2011. Consumption growth in the near term in developed regions will be low due to the economic downturn, but will recover in other regions. Advent of large volumes of acetylene-based PVC production has changed many aspects of the global market. The mega capacity developments had offset the massive level of PVC imports into China, which ran in excess of over 2 mln tpa in 2001-2004 as acetylene based PVC became increasingly advantaged with rising oil prices. As acetylene-based PVC sets the price in the Chinese market, ethylene-based operators have had difficulty selling to the domestic market as crude prices increased. Chinese product has therefore been aggressively marketed around the world. Japan, South Korea and Taiwan collectively have 2.4 mln tons of surplus PVC capacity. This output was previously exported to China, but as China has become self-sufficient in PVC, these countries have been forced to find alternatives to market their product. The collapse in oil pricing eroded this advantage and led to a marked increase in imports in 2008 and 2009 as exports to China resumed. As the capacity build continues, China is expected to increase production and move to a balanced position forcing its’ East Asian counterparts to look further afield once more. Slower rate of capacity development and rapid consumption growth have led to a growth in imports into East Europe. East Europe imports mainly from South Korea and China, although part of the import is of emulsion grade from West Europe, which is used in flexible applications such as flooring. Major new projects are under discussion in Eastern Europe, and the region will move to a more balanced position post 2010. Exports from North America will peak in 2010, driven higher by a combination of large capacity additions and declining domestic demand. If the domestic construction sector fails to show signs of recovery, however, more capacity could be rationalised to avoid this exposure to the export market at the bottom of the business cycle. The rapid growth of demand in the Middle East has outpaced new capacity development. The current slate of projects will not be sufficient to meet demand growth, and therefore the region will remain a net importer for much of the outlook period. Most of the import growth to date has been from East Asia.