Economic Performance in China’s Calcium Carbide Sector, 2016

By Jiang Shunping

The capacity made zero growth for the first time and the output created another new high

China was host to 220 calcium carbide producers at the end of 2016, according to China Calcium Carbide Industry Association statistics (incomplete). They had 45.00 million t/a capacity, almost twice the capacity of 2010, but they had not grown in 2016, for the first time in history. Annual fixed-asset investment in the sector has steadily declined since 2013. The fixed-asset investment in new projects and renovation/expansion projects for the first 11 months of 2016 was estimated to be around RMB2.0 billion, a drop of 3.2% from the same period of the previous year. The capacity of hermetic calcium carbide furnaces with high technology/equipment level and prominent energy-saving/environmental efficiency reached 37.53 million t/a, which was 84% of the total capacity, leaving 16% internal combustion furnaces, a drop of 5 percent points from 2015.
Output was 27.30 million tons in 2016, an increase of 3% over the previous year. The average operating rate was 83% (deducting 12 million t/a capacity either long-term idle or only inter mittently in production). For the most part, every month’s output exceeded 2.10 million tons. There were three highlights in 2016: (1) In Inner Mongolia and Xinjiang, where large scale hermetic calcium carbide furnaces such as 40500 KVA are concentrated, a high operating rate was maintained based on coordinated industrial chains (both upstream and downstream) and low local coal and electricity prices. (2) In Shaanxi, Ningxia and Xinjiang new capacity already put on stream was around 1.20 million t/a, enabling the increased output. (3) In Henan, Yunnan, Sichuan, Hunan and Hubei, due to the high on-grid price of electricity (usually RMB0.15-0.20/kWh or 50% higher than in Inner Mongolia, Shaanxi and Ningxia) the operating rates were quite low.

Enterprise scale grew constantly

With the redistribution of industry all over China and the attraction of abundant coal resources in central and western regions, the focus of calcium carbide production has shifted to central and western regions in recent years. New capacity added during the Twelfth Five-year Plan period (2011-2015) exceeded 1 million t/a in each of five regions – Xinjiang, Inner Mongolia, Shaanxi, Ningxia and Gansu. These five regions had a combined capacity in 2016 of over 33 million t/a, over 74% of the national total.
In 2016, Xinjiang Zhongtai (Group) Co., Ltd., China’s biggest calcium carbide producer, had 3.76 million t/a capacity, 8.3% of the national total. The output of the top 10 producers was 12.98 million tons, 47.5% of the national total. There were 77 calcium carbide producers with individual capacity exceeding 200 kt/a. Their combined capacity accounted for 78% of the national total, 6 percent points higher than in 2015. Table 1 and Table 2 show the details.

Export increased slightly

China exported 144 kt of calcium carbide in 2016, a YoY increase of 10.8%, according to customs data. Major export destinations included India, Pakistan, Nigeria, Korea and the Philippines.

Prices first fell and then rose in 2016

Prices declined steadily after August 2011. The delivered price dropped 41% from a high of RMB4 100/t in 2011 to only RMB2 200/t in mid-2016. The ex-factory price in some regions even dropped below RMB2 000/t, a new historical low. Starting from June 2016, however, with a sustained market recovery of sales for downstream products such as polyvinyl chloride (PVC), calcium carbide prices rebounded robustly. The average delivered price went up from RMB2 400/t at the beginning of the year to around RMB3 100/t at the end of the year, an increase of around RMB700/t. Take Ulanqab of Inner Mongolia for instance. Calcium carbide ex-factory price there reached RMB2 750-2 800/t at the end of the year, RMB600/t and 30% higher than at the beginning of the year; and RMB150/t and 6.1% higher YoY.
The main reasons for prices rising were as follows. (1) Some producers failed to meet environmental protection requirements and were forced to suspend production. Restrictions imposed on limestone mining in Ningxia and Inner Mongolia indirectly reduced calcium carbide output greatly. (2) PVC prices increased substantially, by RMB2 000-3 000/t after the second quarter of 2016, promoting calcium carbide prices. (3) Raw material and logistics costs increased briskly. Semi-coke prices were RMB400/t higher than at the beginning of the year, limestone prices were RMB100/t higher and the logistics costs were RMB70-80/t higher. Production costs of calcium carbide therefore went up by RMB500-600/t without including increased expenses for safety and environmental protection. Figure 1 shows the details.

Table 1  China’s top 10 calcium carbide producers by output, 2016

Rank    Producer    Output (kt)     Proportion of national output (%)
1    Xinjiang Zhongtai (Group) Co., Ltd.    2 920    10.7
2    Xinjiang Tianye (Group) Co., Ltd.    2 190    8.0
3    Hubei Yihua Group Co., Ltd.    1 620    5.9
4    Erdos Chemical Group Co., Ltd.    1 380    5.1
5    Shandong Xinfa Group Co., Ltd.    950    3.5
6    Inner Mongolia Junzheng Energy & Chemical Group Co., Ltd.    920    3.4
7    Inner Mongolia Yidong (Group) Co., Ltd.    830    3.0
8    Elion Co., Ltd.    790    2.9
9    Shaanxi Coal Industry Group Co., Ltd.    710    2.6
10    Inner Mongolia Baiyanhu Chemical Co., Ltd.    670    2.5
    Total    12 980    47.5


Table 2   Scale of Calcium carbide producers in China, 2016

Range    Number of producers    Proportion of national capacity (%)
≥1 000 kt/a    4    10.6
＜1 000 kt/a≥600 kt/a    18    29.1
＜600 kt/a≥200 kt/a    54    38.1
＜200 kt/a≥100 kt/a    39    11.3
＜100 kt/a    105    10.9
Total    220    100


Profitability of regions and enterprises diverged substantially

The entire calcium carbide sector in China suffered losses for two consecutive years after 2014. Enterprises were especially troubled financially in 2015. The sector was still losing money overall in the first half of 2016. After the price rebound at the end of June, however, operations improved. Generally, firms broke even or earned meager profits. Among 60 large enterprises monitored (whose combined output was 78.5% of the national total), 50 made profits, 5 broke even and 5 suffered losses. Their total profit was RMB1.483 billion, an increase of RMB1.096 billion over the previous year. Enterprises in Inner Mongolia, Xinjiang, Shaanxi and Ningxia with geographical natural-resource advantages all made profits. However, more than 80% of enterprises without such resource advantages, in Henan, Hunan, Hubei, Yunnan and Sichuan, suspended production or ran only intermittently, and were generally on the brink of loss. The serious discrepancy in profitability between regions and between enterprises was mainly due to big differences in raw material and electricity prices. The overall functioning of the calcium carbide sector is stable today, but risk factors such as serious capacity surplus, PVC price reductions and high raw material costs still exist. Overall, the sector faces considerable risks and pressures.
Thirty five calcium carbide producers, operating 80 calcium carbide furnaces with a combined capacity of 2.52 million t/a, were phased out or switched over to other product lines in 2016. During 2011-2016, 327 calcium carbide furnaces with a combined capacity of 8.629 million t/a were phased out or converted to other products; 183 producers were involved.

Downstream products were too few, dependence on PVC too risky

Some expansion of downstream application sectors was achieved in recent years. The vinyl acetate, calcium cyanamide and 1,4-butanediol (BDO) sectors actively expanded capacity. Nevertheless, with the decline of the macro economy in past years, establishing new application sectors was rather difficult. The growth of downstream producers’ output was limited, and substantial new demand for calcium carbide could hardly be found. The output of vinyl acetate increased around 157 kt in 2016, driving calcium carbide consumption 1.7% higher. Consumption of calcium carbide in making BDO was around 400 kt higher in 2016. Some advances ware made in diversifying consumption, but changes were small. As the PVC sector still accounts for nearly 80% of China’s calcium carbide consumption, calcium carbide makers depend on the PVC market for survival. At the end of 2016, there were 75 PVC producers in China, with a combined capacity of 23.26 million t/a, according to statistics of China Chlor-Alkali Industry Association. The capacity using the calcium carbide based process was 18.51 million t/a, around 79.5% of the total. Plants are mainly distributed in Inner Mongolia, Xinjiang, Shandong, Tianjin, Shaanxi and Henan, with the total capacity in these regions accounting for 63% of the national total.
Due to the drastic drop of crude oil prices and slack demand for PVC, PVC prices stayed low in 2016. Starting in the second half of 2016, the delivered price of PVC made by the calcium carbide process increased steadily from a low of RMB4 765/t to a high of RMB7 985/t, an increase of over RMB3 200/t. The prices started a sharp slide in mid-November however, falling by RMB1 700/t.

Prospects of the calcium carbide market in 2017

Countries in the “one belt and one road” region such as India, Pakistan, Vietnam and Kazakhstan pose a potentially huge demand increase and considerable opportunities for expanding petrochemical product capacity. More enterprises in China will go out and invest in foreign markets.
Downstream product calcium cyanamide can ameliorate soil acidity, but it’s application still needs some time. Research and practice show that calcium cyanamide can constrain soil acidification, reduce cadmium pollution, control schistosome and increase crop yield. Experts forecast that around 10.00 million tons of calcium cyanamide will be needed in China a year. With constant innovation in application technology, constant reduction of costs and support of favorable government policies, calcium cyanamide will gain large-scale applications in agriculture. If calcium cyanamide output increases 10 million tons, demand for calcium carbide will increase 8 million tons.
As supply-side restructuring unfolds in the PVC sector, that sector’s demand for calcium carbide is hoped to go up. The PVC sector, which consumes 80% of calcium carbide, is actively restructuring its supply-side role and innovating in marketing today. PVC templates for rapid building construction have been successfully developed. Owing to the templates’ excellent performance and long service life, they are realistically hoped to displace traditional timber templates in the building sector. If 30% of timber templates’ market share is taken, the additional PVC demand will be 10 million t/a. In this way, calcium carbide consumption would increase by 14 million tons, greatly relieving the serious surplus of calcium carbide capacity.
International crude oil prices stabilized at a low level and increased a bit in 2016, rising from a low below US$30/bbl to US$55/bbl at the end of the year. The average price of crude oil in the international market will remain at US$55-60/bbl for the first half of 2017. The cost of PVC made by the ethylene process will come down, weakening the competitiveness of PVC made by the calcium carbide process.
The growth of calcium carbide capacity will steadily slow down, but the surplus can hardly change in the near future. The market demand and consumption structure of calcium carbide will see no big changes. Output will grow a bit or plateau.