Chlor-Alkali Makers Wait for Help      

By Zhong Weike    

China's chlor-alkali makers are facing a stern situation, commented by Li Jun, president of Shanghai Chlor-Alkali Chemical Co., Ltd. (SH: 600618) at a conference held in Beijing September 4th.
    Amid the global economic crisis, the output of both polyvinyl chloride (PVC) and caustic soda (CS) plummeted with a low operating rate, which was the first problem faced by China's PVC makers. The country's total output of PVC in H1 was 4.289 million tons, a year-on-year decline of 4.1%, and the caustic soda output fell 4.9% year over year to 9.148 million tons. The average operation rate for all PVC production units in China was around 50% in H1.
   Demand was sluggish. That was also a common topic claimed by chlor-alkali makers. As a key consumer of caustic soda, alumina makers operated around 55% of full capacity in H1, with country's total output declining 4.57% year on year. Other chlor-alkali's consumer sectors like paper pulp, synthetic washing agent, and house-building also had a worsened situation and caused a decreased demand for caustic soda and PVC.
   The imports surge was the third key problem commonly claimed by the twenty listed chlor-alkali companies. In H1 China imported 1.107 million tons of pure PVC resins, 160% higher than the year-ago period while the exports was around 60 thousand tons, equivalent to one seventh of that in the same period of 2008. The exports of caustic soda declined substantially too. Over 50% of PVC was made from calcium carbide in China. This kind of PVC resins were difficult to be accepted by oversea buyers who pay more attention to characters such as low carbon, energy conservation and environmentally friendliness.  
   Price went down. Compared with PVC, caustic soda price fell fewer. So it can be seen that the caustic soda business still enjoyed a good margin in H1. Most companies claimed that the PVC price declined more than that of energy and raw materials.  
   Over capacity was serious. Nearly all the listed chlor-alkali companies were aware of this problem to be addressed but none intends to aggressively close its facility itself except being forced by the government.
    And also, the chlor-alkali sector is always thought to involve dangerous chemicals, high energy consumption and high resource consumption. Safety, environmental protection and energy conservation will consist of main pressures for company's production.  
    According to a report of China Chlor-Alkali Industry Association, there are nine new projects under construction as of this August, with a total planned capacity of 1.67 million t/a. The new caustic soda projects started up in H1 added 800 thousand t/a capacity.
   The existing chlor-alkali makers hope the government to control the expansion by implementing market permission, financial policy, environmental impact assessment and energy supply constrains.

Comprehensive review on the results for the twenty listed chlor-alkali companies

Company    Code
Total sales    Growth over    Net profit    Growth over     EPS
   mln RMB     2008 H1, %     mln RMB        2008 H1, %      RMB/share
Xinjiang Zhongtai      SZ: 002092
    1606.78     -7.53     29.79     -80.12      0.0550
Shanghai Chlor-Alkali    SH: 600618
    2298.36     -21.47     2.77     -93.55      0.0024
Shen Ma Industry     SH: 600810
    2008.61     -15.22     -72.31      *16.89 mln    -0.1635
Sichuan Jinlu Group    SZ: 000510
    880.47      -25.36     -53.86      @48.13 mln -0.0884
Ningxia Yinglite    SZ: 000635
    801.79      -24.57     14.14     -80.28      0.1030
Hubei Yihua Chem    SZ: 000422
    4149.46     4.37     109.50     -69.80      0.2020
Hebei Jinniu Chem    SH: 600722
    545.63     214.14     -11.75      @74.38 mln     -0.0300
Tangshan Sanyou Chem    SH: 600409
    1534.49     -48.12     -24.51      *292.61 mln    -0.0261
Shenyang Chemical    SZ: 000698
    2224.65     -31.93     14.51    -91.30      0.0270
Nanning Chemical    SH: 600301
    703.62     -28.87     -104.45      *16.93 mln    -0.4442
Xinjiang Tianye    SH: 600075
    1406.47     -30.41     -22.52      *143.1 mln    -0.0500
Nantong Jiangshan    SH: 600389
    1228.20     -40.03     1.40     -99.33      0.0071
Taiyuan Chemical    SH: 600281
    1286.61     -36.90     -49.82      *42.7 mln    -0.0970
Weifang Yaxing    SH: 600319
    968.20      -5.74     5.81     -26.51      0.0180
Baotou Tomorrow Technology     SH: 600091
    17.09       -89.30     -53.75      @52.62 mln     -0.1600
Zhejiang Juhua    SH: 600160
    1796.14     -42.08     62.13    -34.57      0.1120
Shandong Haihua     SZ: 000822
    2431.22     -52.87     -251.09     *295.73 mln    -0.2800
Yunnan Salt & Chemical    SZ: 002053
    669.16      -2.72     5.32     2.46