Domestic PVC Players Transform Development Mode to Survive in Meager Profit Era   

By Luan Min, Sinopec Qilu Petrochemical Company
In 2011, China's PVC industry is still facing troubles such as serious overcapacity, a disaccord of calcium carbide-based and ethylene-based PVC production processes and the tough PVC market due to the inflation expectation and the deflation policy. However, these can not prevent the PVC market from recovery. Stronger market demand will force the PVC industry itself to make adjustments, and will affect the PVC market competition ultimately.

1  Overcapacity

Although part of the outdated PVC facilities had been closed, China's PVC industry maintained a high growth in 2010. As of the end of 2010, its production capacity had reached 20.427 million t/a (including paste resins). Eighty-six enterprises had stable production (excluding these plants which had stopped running for over six months). Meanwhile, 679 000 t/a capacity had been withdrawn.
   The domestic PVC capacity is still expanding this year. The production capacity in northern China has improved significantly; large-scale PVC development will be achieved in the east region; northwest region will gradually become one of the most focus areas for the follow-up PVC capacity expansion and new projects launching; project expansion is relatively limited in northeast, south, southwest and central regions. China's total PVC production capacity is expected to exceed 25 million t/a by 2015.
   As shown in Table 1, for years to come, the locations of PVC plants will be inclined in central and western regions of China, with an integrated complex.
   The development cycle of the chlor-alkali industry is to some extent determined by the economic booming periods.
   In 2010, the total production of plastic products in China reached 58.306 million tons, a year-on-year increase of 21.1%, which drove the domestic PVC production to rise correspondingly by 11.3%, to 11.301 million tons. With the further recovery of the economy, the total domestic PVC consumption is expected to reach 12.5 million tons by 2012. The annual consumption growth would be 7% for hard PVC products and about 10% for plastic profiles and pipes.
   Despite the more stringent regulations on the real estate market this year, the construction of a lot of government-subsidized housing is expected to boost the demand for PVC in the second half of 2011. Due to the enormous domestic PVC production capacity, the growing PVC demand pushed by the downstream industries has not powered the domestic PVC market as expected.

2  Meager profit due to rising raw material prices

Profits of ethylene-based PVC business depend on prices of crude oil, EDC and VCM. The oil price is expected to be in the range of US$80 to US$120 per barrel this year. Since prices of crude oil, ethylene and other raw materials run high, together with the effect of Japan earthquake, prices of EDC and VCM will increase in the Asian market. The cargo price of VCM shipping from supplier of Northeast Asia to China has risen to US$950/t CFR this March, which will further increase the cost of PVC production using ethylene method.
   Since the beginning of 2011, a large number of new and expansion calcium carbide projects will be gradually put into production. It will make up for the capacity shrinking brought by out-dated capacity elimination. Thus, calcium carbide production will increase steadily in 2011. A lot of newly-built projects will significantly hinder the price rise of calcium carbide. The current price of semi-coke (the raw material of calcium carbide) is soaring, and prices of lime and electricity and costs of labor and transportation are rising. These factors make calcium carbide production costs rise and will push up the calcium carbide price.

3  PVC market turmoil intensified.

The Chinese government required that high energy consumption enterprises were forced to cut down their production in 2010 due to the pressure of environment protection, leading to a substantial reduction of calcium carbide across the country. Driven by the sharp reduction of raw materials, PVC price has soared to the highest point of the year, almost equal to the high level price in 2008.
   In 2011, PVC market is expected to surge, driven by the firm price of calcium carbide, the end-market recovery and the rising goods prices.
   The low carbon economy is necessary for the domestic chlor-alkali industry to develop in the future. Domestic PVC players need to control cost and be close to customers' demand and raise their profit-making ability.

Table 1: PVC capacity in China and distribution in 2012 (Expected)
Region    Company    Capacity    (thousand t/a)                                                                                                                       
Jilin province    Siping Haohua Chemical Co Ltd    280
Hebei province    Hebei Jinniu Chemical Industry Co Ltd    630
Hebei province    Tangshan Sanyou Group Co Ltd    300
Hebei province    Hebei Shenghua Chemical Industry Co Ltd    400
Inner Mongolia    Elion Chemical Industy Co Ltd    500
Inner Mongolia    Sanlian Chemical Co Ltd    520
Inner Mongolia    Jilantai Salt Chemical (Group) Co Ltd    600
Inner Mongolia    Inner Mongolia Linhai Chemical Co Ltd    150
Inner Mongolia    Inner Mongolia Wuhai Chemical Industry Co Ltd    800
Inner Mongolia    Inner Mongolia Junzheng Chemical Industry Co Ltd    300
Inner Mongolia    Yihua (Inner Mongolia) Chemical Industry Co Ltd    380
Shanxi province    Resin Factory of Changzhi Huojia Industry Co Ltd    160
Shanxi province    Taiyuan Chemical Industry Group Co Ltd    240
Shanxi province    Shanxi Yushe Chemical Co Ltd    400
Tianjin    Tianjin Dagu Chemical Co Ltd    800
Tianjin    LG Dagu Chemical Ltd    400
Tianjin    Tianjin Botian Chemical Industry Co Ltd    170
Jiangsu province    China Salt Changzhou Chemical Co Ltd    270
Jiangsu province    Suzhou Huasu Plastics Co Ltd    130
Jiangsu province    Wuxi Greenapple Chemical Industry Co Ltd    100
Jiangsu province    Xuzhou Tiancheng Chlor-Alkali Co Ltd    120
Jiangsu province    Chiping Xinfa Huayu Alumina Co