Calcium Carbide Output Increases Rapidly

By Li Ying   

Effective control on price downslide in the first half of 2006

The output of calcium carbide in China was 8.9457 million tons
in 2005, an increase of 33.9% over 2004. Local areas were
requested to conduct rectification to the calcium carbide sector
and the trend of redundant construction and blind expansion was
put under control. Problems of capacity surplus, low technical
and equipment level and serious pollution however were not
completely solved.
   In the first half of 2006, the oversupply in the calcium
carbide market had no effective change. The price rise of power,
coal and oil products, however, led to an increase in the
production cost of calcium carbide. The PVC (polyvinyl chloride)
market in China also started the brisk season and played a
positive role in the market demand growth of calcium carbide.
The price downslide of calcium carbide was therefore effectively
controlled.

    1. Rapid increase of output

The output of calcium carbide in China was 5.1021 million tons
in the first half of 2006, an increase of 32.9% over the same
period of 2005, being much higher than the PVC output growth of
26.3%. The operating rate of calcium carbide units increased
from 40% in early 2006 to 55% in the mid-2006. With the demand
increase in downstream sectors, the output growth of calcium
carbide increased drastically in the second quarter of 2006.

    2. Capacity mainly distributed in North China and Northwest
China
China has around 440 calcium carbide producers today. Less than
10 producers have an annual output of over 100 thousand tons,
accounting for only around 2% of the total number of producers.
The average operating rate of calcium carbide units was only
around 50% in the first half of 2006. The operating rate in the
first quarter of 2006 was relatively low, being around 45%. With
the market demand increase, the operating rate in the second
quarter of 2006 was relatively high, being around 55%. It can
be seen that the capacity of calcium carbide in China is still
much higher than the market demand.
   Calcium carbide units in China are mainly distributed in
northern areas. In the first half of 2006, the total output in
North China and Northwest China accounted for 73.7% of the
national total. The development of the calcium carbide sector
in Hebei province, Ningxia and Inner Mongolia was rather quick
and the output growth in the first half of 2006 reached more than
50%.

    3. Drastic export growth

Due to the oversupply in the domestic market, the export growth
rate of calcium carbide in China was much quicker in the first
half of 2006 than before. The export amount was 56.9 thousand
tons from January to June 2006, an increase of 25.3% over the
same period of 2005. The export amount of calcium carbide only
accounted for 1.1% of the output, but the drastic export growth
rate will become the main trend of the calcium carbide market
in the second half of 2006 and can partially mitigate the status
of oversupply.

    4. Price tended to be stable

Stimulated by the effective demand increase in downstream
sectors, the price of calcium carbide changed from sustained
downslide in the first quarter of 2006 to relative stability in
the second quarter of 2006. The calcium carbide market in China
improved slightly in mid-2006 and the operating rate, the output
growth and the market supply amount have all increased. The
mainstream ex-factory price of calcium carbide is RMB2 000 per
ton in Inner Mongolia and Northwest China, RMB2 350 per ton in
North China, RMB2 400 per ton in Northeast China, RMB2 500 per
ton in Central South China, RMB2 600 per ton in East China and
RMB2 550 per ton in Southwest China.

Cost promoting market price rebound in the second half of 2006

Due to the sustained price rise of crude oil in the international
market, the production cost of calcium carbide increased
constantly and calcium carbide producers were faced with
unprecedented pressures in the first half of 2006. The high level
of crude oil price in the international market will inevitably
affect the market price of oil products in China in the second
half of 2006. The upward readjustment made by China to the price
of oil products will also produce an impact on the logistic cost
of calcium carbide. The logistic cost in calcium carbide
producers increased by around 20% in the first half of 2006 and
will be still higher in the second half of 2006. China has
recently increased the price of power energy by another
RMB0.0295 per kWh and the production cost of calcium carbide is
therefore nearly RMB100 per ton higher. Calcium carbide
producers are almost pushed to the extremely difficult situation.
The market price of calcium carbide will rebound. The ex-factory
price of calcium carbide in domestic producers has recently gone
up by RMB50-100 per ton.
   The sustained slackness of the calcium carbide market in
China mainly results from serious consequences of the unplanned
capacity expansion. The growth of the downstream demand lacks
force, but the capacity and the output have increased rapidly.
The operating rate is therefore relatively low and the sales have
great difficulties. The Chinese Government has exercised strict
control on calcium carbide producers and conducted effective and
rational comprehensive utilization of calcium carbide resources
and power resources in major calcium carbide producing regions
such as Northwest China and North China. A large group of
chlor-alkali projects and PVC projects will also be launched in
those regions. These projects will play a positive role in
digesting surplus calcium carbide capacity. In the long run,
large production scale and good economic performance will become
an inevitable development trend of the calcium carbide sector
in China. The production condition and the industrial
development level will also have greater improvement and
upgrading.
   It is the brisk season for the PVC demand today and the rapid
demand growth of PVC will promote the development of the calcium
carbide sector. Pushed by the further demand increase of PVC,
the output growth of calcium carbide in China will be higher in
the second half of 2006. It is expected that the output of PVC
in China will reach 8.0 million tons in 2006 with a growth rate
of over 20%. The output of calcium carbide in China will be more
than 10 million tons in 2006, reaching the highest historical
level.
   The output growth of PVC in China has led to a drastic import
reduction and the dependence on import dropped from 20% in 2005
to around 11% in the first half of 2006. The import amount of
PVC in China was 755 thousand tons from January to June 2006,
a drop of 11% from the same period of 2005.
   Besides, 6 ministries and commissions including the National
Development and Reform Commission issued a notice in mid-May
2006 concerning accelerating the distribution readjustment to
the calcium carbide sector. Strict control will be exercised on
the production scale of existing calcium carbide units, new
projects and environmental protection. It is expected that the
serious surplus of the calcium carbide capacity in China will
be gradually mitigated in the next few years. With the constant
development of the downstream market, t