Economics of China’s Chlor-Alkali Industry in 2015

By Zhang Peichao, China Chlor-Alkali Industry Association

At the end of 2015, China had 163 caustic soda producers with a combined capacity of 38.73 million t/a and 81 PVC (polyvinyl chloride) enterprises with a combined capacity of 23.48 million t/a. China’s supply and demand for caustic soda and PVC in recent years are shown in Table 1.

1. Capacity & output declined

In 2015, China added 1.69 million t/a of caustic soda capacity and eliminated 2.06 million t/a, yielding a net decrease in capacity. Among the units permanently shut down were 1.13 million t/a of diaphragm units and 930 kt/a of ion-membrane units.
In 2015, China’s capacity to produce PVC (including paste resin) was 23.48 million t/a, down 410 kt/a year-on-year. Newly added PVC capacity amounted to 780 kt/a, and 1.19 million t/a was decommissioned – a net decrease. The number of producers was seven fewer than in 2014.
In 2015, China made 30.28 million tons of caustic soda, down 1.4% YoY, and 16.09 million tons of PVC, down 1.7% YoY.


Table 1  China’s supply & demand for caustic soda & PVC

Product    Item    2000    2005    2010    2012    2013    2014    2015
Caustic soda    Capacity (kt/a)    8 000    14 710    30 210    37 360    38 500    39 100    38 730
    Output (kt)    6 650    12 400    20 870    26 990    28 540    31 800    30 280
    Import volume (kt)    46    47    17    12    10    10    9
    Export volume (kt)    243    834    1 543    2 079    2 073    2 010    1 767
    Apparent consumption (kt)    6 453    11 613    19 344    24 923    26 477    29 800    28 520
PVC    Capacity (kt/a)    3 200    9 720    20 430    23 410    24 760    23 890    23 480
    Output (kt)    2 390    6 700    11 300    13 180    15 300    16 300    16 090
    Import volume (kt)    1 445    1 307    1 200    940    760    680    710
    Export volume (kt)    -    119    218    386    660    1 110    770
    Apparent consumption (kt)    3 835    7 888    12 282    13 734    15 400    15 870    030



2. Caustic soda market hit bottom and rebounded, and PVC prices decreased

In early 2015, domestic prices of liquid caustic soda decreased overall, but in April and May, with some demand growth and seasonal equipment maintenance, the prices rose slightly. From late June to mid-August, some sectors downstream of caustic soda producers entered a normal demand off season, caustic soda prices in some regions declined with slight fluctuation. From mid-August to December, burdened with unsalable liquid chlorine, chlor-alkali producers in some regions reduced their operating rates, so the output of caustic soda decreased, stimulating a rise of caustic soda ex-factory prices in East China and North China. In Northwest China, the supply and demand for caustic soda were balanced, producers maintained inventories at a reasonable level, and prices did not change significantly.
Operating rates in the aluminum oxide sector tended to decline slightly, and aluminum oxide prices remained low, giving no significant support to caustic soda prices. Demand in the chemical fiber, textile and dyeing/printing sectors was relatively stable. The price trend of 32% ion-membrane caustic soda since 2014 is detailed in Figure 1.
Entering 2015, domestic PVC prices continued to decline. In mid-February, influenced by rising prices of raw materials calcium carbide and ethylene and by shutdowns for seasonal maintenance, domestic PVC prices recovered. However, demand hovered at a low level and oversupply worsened constantly, so it has been difficult for the domestic PVC market to pull out of the decline. Since June, with weakening support from raw material prices, PVC prices started sliding again, passing the expected level, and stayed close to the bottom. China’s trend of PVC market prices since 2014 is shown in Figure 2.

3. Exports of both caustic soda and PVC declined

In 2015, China exported 1.13 million tons of liquid caustic soda, down 11.3% YoY, and 639 kt of solid caustic soda, down 13.7% YoY. Major export destinations of liquid caustic soda included Australia, India, Singapore and the United States, etc. Solid caustic soda was still exported mainly to Nigeria, Uzbekistan, Senegal and Vietnam.
In 2015, China imported 711 kt PVC pure powder, up 4.9% YoY, and exported 774 kt, down 30% YoY. China’s import and export of major chlor-alkali products and raw materials in 2015 are detailed in Table 2.

4. Downstream: slack raw material demand & weak growth

China produced 24.83 million tons of calcium carbide in 2015, up 1.4% YoY. In early 2015, the domestic supply of calcium carbide was sufficient, so calcium carbide prices bottomed out. However, from early March, with PVC prices rising, calcium carbide prices also climbed until early May. With low PVC operating rates and a growing supply of calcium carbide, calcium carbide prices hit bottom again. After a slight increase in July, prices slid again, persistently and drastically. Entering the fourth quarter with weak demand, prices dropped further, with some fluctuation.
In 2015, China’s crude salt output was 59.75 million tons, down 1.7% YoY. Constrained by environmental protection measures, the demand for crude salt in small industries with high pollution – like textiles, dyeing/printing and leather – was slack. Due to slower growth of crude salt inventories, sellers were inclined to raise crude salt prices, but the caustic soda and soda ash sectors downstream remained slack, holding prices down.
In 2015, output grew slowly in major chlor-alkali-consuming sectors like plastics and viscose fibers. The growth of aluminum oxide output was mainly due to new units going on stream, creating little new demand for chlor-alkali products. With the restriction of production in the aluminum oxide sector, its demand for caustic soda will decline.

Table 2   China’s foreign trade in chlor-alkali products , 2015  (kt)

Product    Liquid caustic soda    Solid caustic soda    PVC pure powder
    Export    Export    Import    Export
Total    1 127.4    639.4    711.3    774.0
Growth (%)    -11.3    -13.7    4.9    -30



Near-term outlook for chlor-alkali market

In 2016, demand is expected to stay slack. With the low prices of major chlor-alkali products, the overall market is not favorable. The market will fluctuate in a narrow range. The slack downstream demand will be the predominant factor in the market, especially with regard to aluminum oxide. It is expected that chlor-alkali enterprises will keep operating rates relatively high, and oversupply cannot be remedied in the short term, so the market will continue to be dull.
Conditions in the PVC market are not much different – oversupply and slack demand – and the supply buildup is worsening. At the same time, the real estate market is still quite slow, so it is unlikely for downstream demand to improve much, and the PVC market will not be optimistic.