Urgent Need to Remedy Excess Calcium Carbide-based PVC Capacity in China

By Liu Zizhen, Handan Fuyang Chemical Group Co., Ltd.

Excess capacity of PVC

After more than half a century of development, China’s PVC (polyvinyl chloride) industry has already acquired a considerable scale and strength. The domestic production scale of PVC has developed from 10-thousand-ton to 1-million-ton. In other countries, PVC is mainly made by the ethylene process, while in China, it is mainly produced by the calcium carbide process. China is rich in coal and limestone resources, so the calcium carbide makes sense and has advantages. China’s calcium carbide-based PVC industry has developed rapidly, and now has more than 90 producers. By 2007, China’s capacity and output of PVC ranked first in the world, and China had become the world’s leading PVC consumer. However, in recent years, due to unjustified capacity expansion and disorderly competition in the PVC industry, and the insufficiency of effective demand caused by the global financial crisis, PVC, especially calcium carbide-based PVC has been included in the overcapacity list of the chemical industry. China’s capacity to make PVC was 17.81 million t/a, and surplus capacity accounted for 41.2% of the total. By the end 2012, China’s capacity to produce PVC reached 23.41 million t/a, and the overall operating rate was only 56%. In the Guiding Catalogue for Adjustment of Product Structure (2011 Edition), released by the National Development and Reform Commission (NDRC), new calcium carbide-based PVC projects are prohibited. In the first half of 2013, however, the domestic PVC capacity still increased by 510 thousand t/a. China’s capacity to make PVC will continue to grow steadily. China’s development situation of PVC in recent years is listed in table 1.

Table 1     China’s PVC Sector Development in Recent Years

Year    2008    2009    2010    2011    2012
Total capacity (kt/a)    15 810    17 810    20 427    21 622    23 410
Total output (kt)    8 820    9 150    11 301    12 952    13 178
Capacity of calcium carbide-based PVC (kt/a)    12 000    13 600    16 517    17 230    18 939
Output of calcium carbide-based PVC (kt)    6 200    5 800    8 000    9 900    9 800
Operating rate of calcium carbide-based PVC units (%)    51.7    42.7    48.0    57.5    51.7
Capacity proportion of calcium carbide-based PVC (%)    75.9    76.4    80.9    79.7    80.9
Apparent consumption (kt)    9 020    10 544    12 282    13 634    13 733
Apparent surplus capacity (kt/a)    6 790    7 266    8 145    7 988    9 677


Deep-seated reasons for the excess capacity

China’s excess PVC capacity is mainly surplus capacity for calcium carbide-based PVC – low-end general-purpose PVC to be more exact. There are four main reasons for this.
1. Both output and demand were brisk during a boom, and enterprises reaped rich profits
Entering the 21st century, with the drastic development of China’s PVC industry, market consumption was very brisk. In 2004, China’s output of PVC reached 5.03 million tons; however, the PVC consumption was 7.0 million tons, there exists a huge supply gap, and the market price of PVC reached more than RMB9 000 per ton. The huge profits stimulated enterprises from related sectors to invest in PVC projects, so the calcium carbide-based capacity for PVC increased drastically. Capacity grew faster than consumption, resulting in excess capacity.
2. Upstream drove investments in chlor-alkali industry.
Due to the matured production technology of calcium carbide-based PVC, by virtue of their rich energy (coal and power) and raw materials (limestone and raw salt) as well as sufficient funds, upstream (coal, power, calcium carbide and raw salt, etc.) enterprises such as Shanxi Yangquan Coal Industry Group, Henan Pingmei Group, Inner Mongolia Elion Resources Group, Shandong Energy Xinwen Mining Group Co., Ltd, Shandong Jining Gold Power Co., Ltd, Anhui Huaibei Mining Group and Qinghai Salt Lake Haina Chemical Co., Ltd have made investments in calcium carbide-based PVC projects and extended their industrial chain, aiming to obtain greater investment benefit. Because of the advantage of their energy resources, and the high speed, low cost and strong competitiveness of new calcium carbide-based PVC units, the upstream enterprises not only extended their industrial chain, but also reaped a portion of the profits of the PVC industry, aggravating the excess capacity of calcium carbide-based PVC.
3. Lower threshold and inadequate supervision
The access conditions for the chlor-alkali industry announced in November 2007 only encouraged the use of the ethylene oxychlorination process to replace calcium carbide-based PVC production technology, and encouraged the development of calcium carbide-based PVC production technologies such as dry process-based acetylene, large-scale converter, pressure swing adsorption and mercury free catalysts. In the newly constructed and expanded PVC units, the consumption of calcium carbide and ethylene should be less than 1 420kg/t and 480kg/t, respectively. The access conditions have requirements on the safety, health, environmental protection and management of enterprises.
Due to its low access threshold and short access cycle, a calcium carbide-based PVC project is very helpful for driving up the local GDP, and can improve the employment rate and increase local tax revenues. A calcium carbide-based PVC project typically features large scale and quick return on investment, and has become a hot development sector for local governments to foster. In order to develop the local economy, local governments encourage local enterprises and foreign companies to invest and construct calcium carbide-based PVC units, resulting in more serious overcapacity of calcium carbide-based PVC.
4. Slack demand and less export
Influenced by the global financial crisis, global economic development slowed down, and market consumption has been slack. Furthermore, the global trade environment has changed greatly – many countries have implemented protectionist policies, and trade friction has significantly increased for Chinese products. Some countries have greatly increased anti-dumping duties against PVC products originating from China and seriously damaged the legitimate rights and interests of Chinese exporters. Slack domestic demand and decreased export have aggravated the oversupply of PVC in China.

Excess capacity has risks and negative impacts on the PVC industry and related sectors

The serious overcapacity of calcium carbide-based PVC has seriously damaged the sustainable and healthy development ability of the industry. If the imbalance is not reduced, the survival and development of enterprises will face great challenges or an "overcapacity crisis" will appear in the market, and at the same time certain negative effects will be felt in related sectors.
1. Low operating rate and waste of funds and resources
The overcapacity has led to low operating rates of calcium carbide-based PVC units. The average annual operating rate of calcium carbide-based PVC units was 51.7%, 42.7%, 48.0%, 57.5% and 51.7%, respectively during 2008-2012. For the five year period as a whole, the average operating rate was only 50.32%. Nearly half of the units were idle, not only wasting investment and resources (including equipment, appliances and materials), but also permitting corrosion and damage due to the lengthy idleness of units.
2. Low prices and poor profitability of enterprises
With the disorderly competition among enterprises, the domestic capacity to make PVC is in serious surplus. Furthermore, production costs have increased and demand has been soft. In 2012 and the first half of 2013, the prices of PVC products fluctuated at a low level of around RMB6 500 per ton, resulting in a substantial reduction of profits in the PVC enterprises. Many enterprises suffered losses and lost competitiveness.
3. Heedless capacity expansion influences related sectors
The raw materials of calcium carbide-based PVC mainly include chlorine and hydrogen from the chlor-alkali industry as well as calcium carbide from upstream sectors. At the same time, producing one ton of calcium carbide-based PVC consumes chlorine produced by 0.9 tons of caustic soda, so upstream caustic soda units with a considerable scale are built to match all newly constructed or expanded PVC units, resulting in more serious overcapacity of caustic soda. The average annual operating rate of China’s caustic soda units is around 70%. Due to the increased production cost caused by the price rise of energy and resources, and by the excess capacity, 36% of the 83 domestic chlor-alkali enterprises suffered losses in 2012. With the startup of new units and the slack demand, enterprises with negative earnings accounted for 60% of the total in the first half of 2013.
In addition, the ill-advised expansion of calcium carbide-based PVC capacity has certain negative effects on the upstream calcium carbide sector. Producing one ton of calcium carbide-based PVC consumes around 1.5 tons of calcium carbide, and more than 70% of the output of the calcium carbide sector is used to make PVC. In 2012, China’s apparent consumption of calcium carbide reached 19.85 million tons, of which 14.21 million tons (over 71.6%) was used to make PVC. In the drastic development of the calcium carbide-based PVC sector, enterprises in the central and western regions – having access to abundant coal, power and limestone as well as having a great capital advantage – invested in large-scale calcium carbide-based PVC projects and obtained huge returns. When the capacity to make calcium carbide-based PVC grew to excess, the consumption of calcium carbide was reduced drastically, and the calcium carbide sector failed to open up new consumption fields, aggravating the excess capacity of calcium carbide. By the end of 2012, China’s capacity to produce calcium carbide reached 32.3 million t/a, the overall operating rate was only 61.9%, and many calcium carbide enterprises reduced or suspended production and suffered severe losses.
4. Excessive development flouts efforts to conserve energy and reduce emissions
Upstream, calcium carbide is product with high energy consumption and high emissions, so calcium carbide-based PVC itself is essentially a product with high energy consumption and high emissions. At present, the greener sealed-style calcium carbide furnaces account for less than 50% of China’s total calcium carbide capacity. The power consumption of calcium carbide-based PVC (including the power consumption of calcium carbide) is around 5 500 kWh per ton, equivalent to consuming 2.365 tons of standard coal and discharging 9.46 tons of carbon dioxide. The capacity is surplus, the output has increased, the price has decreased, and the production of calcium carbide-based PVC is not only unprofitable, but also produces serious environmental pollution.
In addition to consuming around 1.5 tons of calcium carbide, producing one ton of calcium carbide-based PVC typically generates around 20kg of calcium carbide dust. Using the traditional wet acetylene process, 14 tons of calcium carbide slag slurry with a content of around 85% (equivalent to over 2 tons of dry basis) and 10 tons of sulfur-containing alkaline wastewater are still discharged. The advanced dry acetylene process can reduce 90% of wastewater and produce calcium carbide slag cement through resource utilization. At present, many enterprises still use the wet acetylene process.
In the production of calcium carbide-based PVC, the polymerization of vinyl chloride requires mercuric chloride catalyst (mercury catalyst), and producing one ton of calcium carbide-based PVC consumes 1.2-1.4 kg of mercuric chloride catalyst on average, equivalent to 0.89-1.03 kg of mercury. Although some firms use low-mercury catalyst, the use of low-mercury catalyst, advanced clean production and mercury pollution prevention technologies is not widespread. Therefore, the rash development of calcium carbide-based PVC capacity wastes energy, worsens emissions, and harms the environment.
5. Homogeneous development
Whether in new units or in expansion projects, China’s calcium carbide-based PVC enterprises have developed a rather homogeneous capacity to make only low-end general-purpose PVC resin. The domestic capacity to make low-end general-purpose PVC resin is seriously in surplus, resulting in fierce competition in the domestic market. China’s PVC units cannot meet the increasingly diversified PVC demand, and the domestic plastics processing sector still has no option but to import large quantities of the newer special varieties of PVC resin from abroad. China’s PVC industry has developed from overall shortage in the last century to both "structural surplus" and "structural shortage" in this century.

Many measures need to be implemented to remedy the excess of calcium carbide-based PVC capacity

To solve the problem of excess calcium carbide-based PVC capacity, China must adjust the sector’s product portfolio and change its industrial development pattern.
In recent years, a number of products resulting from independent innovation and successful R & D have emerged in the domestic PVC industry, such as the matt PVC resin of Hebei Jinniu Chemical Industry Co., Ltd, the chlorinated PVC special resin of Sinopec Qilu Petrochemical Co., Ltd, the high impact PVC composite resin, ACR-g-VC of Hebei Shenghua Chemical Industry Co., Ltd, the aqueous phase chlorinated PVC and vinyl chloride-vinyl acetate copolymer resin of Shanghai Chlor-Alkali Chemical Co., Ltd, the vinyl chloride-vinyl acetate paste resin and the PVC special resin for producing medical gloves of Shenyang Chemical Co., Ltd, the PVC blending resin of Tianjin Botian Chemical Co., Ltd and the vinyl chloride-vinyl acetate copolymer of Xinjiang Tianye (Group) Co., Ltd.
Accelerate the elimination of outdated production capacity while supporting the exit policy.
Strictly enforce market access conditions and strengthen supervision.