Economics of the Chlor-Alkali Sector in China in 2014 and Market Prospect

By Zhang Peichao, Deputy Secretary-General, China Chlor-Alkali Industry Association

1. Economics of the chlor-alkali sector in China in 2014

The average annual growth of China’s caustic soda capacity reached 13.7% during 2000-2012, the average annual growth of output was around 12.4% and the average annual growth of apparent consumption was 11.9%. Capacity growth slowed down to 3% in 2013, output growth was 5.7% and the growth of apparent consumption was around 6.3%. The growth of capacity was slowed down further in 2014, to 1.6%. There are 175 caustic soda producers in China today and the total capacity at the end of 2014 was 39.1 million t/a.
The annual growth of polyvinyl chloride (PVC) capacity in China averaged 18.0% during 2000-2012, annual growth of output averaged 15.3% and annual growth of apparent consumption averaged 11.2%. The growth of capacity was down to 5.8% in 2013, growth of output was around 14% and growth of apparent consumption was 12%. PVC sector saw a net reduction of capacity in 2014. There are 88 PVC producers in China today, and the total capacity at the end of 2014 was 23.89 million t/a. Table 1 shows the supply and demand for caustic soda and PVC in China during 2000-2014.

1.1 Capacity growth for major products was basically stagnant; output and operating rate increased

There were fewer new and expansion projects in China’s chlor-alkali sector in 2014. The growth of caustic soda capacity slowed down remarkably, and PVC capacity was reduced. During 2014, 2.13 million t/a of new capacity to make caustic soda went on stream, and 1.53 million t/a was phased out, so the net capacity increase was 600 kt/a. New PVC capacity (including paste) amounted to 660 kt/a, and capacity of 1.53 million t/a was phased out, so the net capacity reduction was 870 kt/a.
China’s total output of caustic soda in 2014 was 31.8 million tons, up 7.9% YOY. The operating rate of caustic soda units was 82%, up 8% YOY. The total output of PVC was 16.3 million tons, up 6.5% YOY. The average operating rate of PVC units was 67%, up 5% YOY. The output trends of caustic soda and PVC were on the whole quite stable in 2014. See Figure 1 for details.

Table 1  Supply and demand for caustic soda and PVC in China, 2000-2014  (kt)

Product    Item    2000    2005    2010    2012    2013    2014
Caustic soda    Capacity    8 000    14 710    30 210    37 360    38 500    39 100
    Output    6 650    12 400    20 870    26 990    28 540    31 800
    Import volume    46    47    17    12    10    10
    Export volume    243    834    1 543    2 079    2 073    2 010
    Apparent consumption    6 453    11 613    19 344    24 923    26 477    29 800
PVC    Capacity    3 200    9 720    20 430    23 410    24 760    23 890
    Output    2 390    6 700    11 300    13 180    15 300    16 300
    Import volume    1 445    1 307    1 200    940    760    680
    Export volume    -    119    218    386    660    1 110
    Apparent consumption     3 835    7 888    12 282    13 734    15 400    15 870



1.2 The markets for caustic soda and PVC stayed slack

The caustic soda market in China was slow in 2014 and the prices declined slightly overall. The oversupply in the domestic market did not change. The growth of caustic soda demand in sectors such as alumina and chemical fibers slowed down drastically in 2014.
By February 2015 the mainstream price of 32% ion-membrane caustic soda was RMB460-600/t in North China. The mainstream price of 32% ion-membrane caustic soda was RMB580-700/t in East China. The mainstream prices of 32% ion-membrane caustic soda were mostly in the range RMB360-480/t in Northwest China. Figure 2 shows the price trend of 32% ion-membrane caustic soda in China in 2014.
PVC business in China was not favorable overall from the beginning of 2014. The market price of calcium carbide process PVC dropped below RMB6 000/t at the end of March for the first time since 2008. The market prices of PVC in South China and East China rebounded rapidly at the beginning of September. The biggest regional increase was RMB100/t in South China, and the average increase in East China was RMB30-50/t. With crude oil prices falling in the international market, the price of imported ethylene kept coming down, and the price of ethylene process PVC started to decline somewhat at the end of 2014.
By the beginning of February 2015, calcium carbide process PVC was offered at RMB4 800-4 950/t in North China. Calcium carbide process PVC 5# was offered at RMB5 050-5 100/t, and ethylene process PVC was offered at RMB5 400-5 450/t in East China. Calcium carbide process PVC 5# was offered mostly at RMB5 050-5 150/t, and ethylene process PVC was offered at RMB5 500-5 600/t in South China. Figure 3 shows the price trend of PVC in China in 2014.


Table 2    China’s import and export of major chlor-alkali products and raw materials, 2014  (kt, %)

Product    Import and export    Jan.    Feb.    Mar.    Apr.    May    Jun.    Jul.    Aug.    Sep.    Oct.    Nov.    Dec.    Total    YoY growth
Liquid caustic soda    Export volume    129    63    53    89    53    160    184    139    168    52    107    74    1 271    -2.4
Solid caustic soda    Export volume    51    33    63    67    70    59    74    63    69    65    59    70    741    -3.8
PVC pure powder    Import volume    73    56    63    49    52    44    60    50    55    50    56    69    678    -10.7
    Export volume    55    61    89    85    119    142    140    138    115    76    51    34    1 106    68.4
Ethylene    Import volume    173    114    133    157    131    99    104    115    108    123    115    126    1 497    -12.1
EDC    Import volume    40    57    44    62    83    71    58    88    55    24    57    47    686    4.2
VCM    Import volume    78    55    36    47    40    54    68    51    51    39    51    85    654    -1.6



1.3 Caustic soda export was slack, PVC export increased somewhat

The export of caustic soda from China was rather slack in 2014. The export volume of liquid caustic soda declined slightly from the previous year. The export volume of solid caustic soda also declined overall.
The import of PVC pure powder to China declined in 2014 compared with 2013. In sharp contrast, the export volume of PVC was nearly 70% higher than in 2013.
As for vinyl raw materials, the high cost of ethylene raw material boosted the prices of ethylene dichloride (EDC) and vinyl chloride monomer (VCM) in the first three quarters of 2014, and the import of vinyl raw materials was flat. With price reductions of both crude oil and ethylene, the prices of EDC in the international market declined in the fourth quarter, and the prices of VCM also dropped. Affected by an overall drop in foreign prices, the mainstream prices of PVC exported from China also declined.

1.4 Growth of major chlor-alkali downstream sectors lacked vigor

With China’s real estate market slack, the operating rates of the makers of plastic construction materials, a major downstream sector of PVC, were not high. The overall operating rate of PVC profile producers in 2014 was 10-20% lower than in 2013, and the operating rates of PVC pipe producers was about 10% lower than in 2013.
Demand for caustic soda among alumina producers and in the dyeing/printing sector was not favorable either. The alumina market in China slowed down in 2014. The dyeing/printing sector also faced various problems, such as insufficient demand (both at home and abroad), a drastic rise of domestic dyestuff prices and the difficult implementation of new standards for waste water effluence. Although indexes such as main-business revenue, profit and export maintained stable growth, the growth rates of 2013 could hardly be attained.

1.5 Raw materials market was slack

The total output of calcium carbide in China was 25.48 million tons in 2014, an increase of 12.9% over the previous year. With the growing output of calcium carbide process PVC, the output of calcium carbide also increased considerably, but due to sustained slackness in the PVC market downstream, growth was much slower than the growth of over 20% seen in the fourth quarter of 2013.
Calcium carbide prices in China declined somewhat in 2014 (See Figure 4 for details). The growth of calcium carbide capacity slowed down greatly. PVC makers are the most important consumers of calcium carbide, and PVC prices stayed low. PVC support of the calcium carbide market was therefore weak. Recovery of PVC prices was not in the cards.
The total output of raw salt in China was 64.34 million tons in 2014, a drop of 2% from 2013, and the overall market supply was stable with some reduction.

1.6  Pressure of environmental protection

The chlor-alkali sector in China faces pressure to prevent and control mercury pollution from the production of calcium carbide process PVC. An international convention concerning mercury pollution will soon be signed. Implementation of China’s new “Environmental Protection Law” will also force the petrochemical sector to transform and upgrade. Moreover, employee safety has always been a focus of attention.

2. Prospects

In China’s economic environment with a consensual scenario of overall slackness, the chlor-alkali sector will face more severe challenges in 2015. Against a macro economic background that includes capacity surplus, slack demand and a price slump of major chlor-alkali products, the overall chlor-alkali market can by no means be favorable in 2015.

2.1 Caustic soda

The caustic soda market in China will remain sluggish in 2015. The shrinkage of demand will be the key factor influencing the caustic soda market. Demand from the alumina sector, in particular, will be inadequate. It is expected that the operating rates of chlor-alkali producers will remain relatively high, so the oversupply can hardly change in the near future.

2.2 PVC

The PVC market in China will face oversupply and slack demand in 2015. Chlor-alkali producers in China should therefore avoid competition with homogenous products, develop toward high-end, refined and differentiated product varieties, enhance comprehensive competitiveness in other ways and develop PVC applications in new sectors.