By Jiang Shunping, China Calcium Carbide Industry Association

The calcium carbide sector in China was stable overall in 2017. The supply and demand were basically balanced, prices became more rational again, the effects of eliminating outdated capacity were prominent and operations improved substantially. With more stringent policies for environmental protection, however, prices of raw materials for calcium carbide increased steadily, making production costs much higher. Due to serious capacity surplus, the working capital of producers was tight, downstream products were undifferentiated and efforts to conserve energy and protect the environment were stern. There are indeed both joys and worries in the calcium carbide sector.

Joys

   1. The production structure makes constant upgrading
   Calcium carbide capacity has been reduced during two consecutive years, yielding prominent operational benefits. The proportion of air-tight calcium carbide furnaces with energy conservation and environmental protection keeps going up. Technical innovation guides the calcium carbide sector to develop in the direction of greening and smartness.
   According to incomplete statistics by the China Calcium Carbide Industry Association, by the end of 2017 there were 180 calcium carbide producers in China, the outdated capacity eliminated or shifted to other products was estimated to be roughly 3.5 million t/a, the new capacity was 600 kt/a and the actual effective capacity (deducting capacities that suspended production for a long time) was around 33.0 million t/a. Based on the latest data from the National Bureau of Statistics, China made 22.7 million tons of calcium carbide during January-November 2017, a drop of 0.4% from the same period of the previous year. According to incomplete statistics by the China Calcium Carbide Industry Association, output for the whole of 2017 is estimated to have been around 27.0 million tons, and the growth over the previous year would be around 1.0%. Capacity utilization reached 85%. See Table 1 for details.

Table 1   Top 10 calcium carbide producing provinces, Jan.-Nov. 2017    (t)

   By the end of 2017 the proportion of air-tight calcium carbide furnaces with a high level of technology and equipment went up from 79% in 2015 to 85%, being 6 percentage points higher. The number of air-tight calcium carbide furnaces above 25 000KVA was 10 more than in the previous year. The level of technology and equipment matched to air-tight calcium carbide furnaces, such as oven gas purification systems, gas-fired lime kilns and automatic control systems is much higher, and more and more producers have started to use such technology and equipment. Mechanical dischargers and fully automatic discharge robots have already been successfully developed and are used by over 30 producers. Purified ash burning technology has gained extensive application. Developers of new processes for calcium carbide production, such as the auto-thermal process and the thermos process, have completed pilot tests and paved a solid foundation for diversification of process routes.
   2. Regional distribution is constantly optimized
   In recent years the focus of calcium carbide production in China has gradually shifted to central and western regions with rich coal and power resources. Calcium carbide capacity in Gansu reached around 1.0 million t/a in 2017. Xinjiang, Inner Mongolia, Shaanxi and Ningxia each had a calcium carbide capacity of over 3.0 million t/a. The total calcium carbide capacity in these five regions exceeded 31.0 million t/a in 2017, accounting for over 74% of the national total. The top 10 calcium carbide producers in terms of capacity produced 12.47 million tons of calcium carbide, an increase of 3.5% over the previous year and over 40% of the national total. See Table 2 for details.

Table 2    Top 10 calcium carbide producers, 2017

   The export of calcium carbide in 2017 was however lower than in the previous year. Customs statistics show that China exported 130 kt of calcium carbide during January-November 2017, a drop of 9.35% from the same period of the previous year. The average export price was US$553/t, down US$40/t. Calcium carbide exported by China went mainly to India, Pakistan, Nigeria, Togo and the Philippines.
   3. Stringent policies for environmental protection further accelerate the elimination of outdated capacity and enable the price of calcium carbide to be rational once more
   Operators of more than 50 internal-combustion calcium carbide furnaces with high energy consumption were forced to phase them out in the last two years, bringing the total remaining capacity to 2.9 million t/a. With impacts from environmental protection policies, more than two-thirds of calcium carbide producers in Gansu and Ningxia suspended or reduced their production in December 2017, and calcium carbide producers in Shandong, Henan and Inner Mongolia also restricted their production to various extents. According to incomplete statistics by the China Calcium Carbide Industry Association, due to factors such as environmental protection, safety and production cost, 9.0 million t/a of capacity was idled or only intermittently in production for much of 2017, and more than 5.0 million t/a of the capacity still used internal-combustion calcium carbide furnaces with high energy consumption and serious pollution. Such calcium carbide furnaces will gradually disappear from the industry.
   The prices of calcium carbide in China rose overall in 2017, rising in the second and third quarters specifically.
   4. Benefits turn better, but sharp differences between regions and between producers are evident
   China’s calcium carbide sector as a whole was still on the edge of loss in the first half of 2017. A price rebound started at the end of July, operating rates rose substantially, and prices went up by RMB600-700/t. In the fourth quarter, however, prices dropped RMB150-200/t. Due to a rapid rise of raw material prices, the cost of making calcium carbide increased around RMB300/t during 2017. Although the financial benefits of the sector improved substantially, the entire sector was still just breaking even or earning meager profits. The situation of the 74 major calcium carbide producers (the output accounting for around 89% of the total) monitored by China Calcium Carbide Industry Association was as follows: 24 producers taking calcium carbide as commodity suffered some loss or broke even; among 42 calcium carbide producers with matched PVC units (46% of the total capacity), 35 producers (37% of the total) earned profits and the other seven suffered losses; the remaining eight producers with other downstream products earned profits or broke even. For calcium carbide producers in Inner Mongolia, Xinjiang and Shaanxi, supposing the average price of calcium carbide in 2017 was RMB2 550-2 650/t (tax-inclusive ex-factory price) the profit was RMB100-200/t for producers with coal/power integration and producers with no matched upstream facilities earned thin profits. The pressure on production and operations in calcium carbide producers in Hubei, Hunan, Yunnan, Sichuan, Henan and Gansu was however quite high. More than 70% of producers in these regions were idle or only intermittently in production, and more than 80% of them suffered losses.

Worries

   1. Pressure to mitigate surplus capacity is still big
   According to incomplete statistics by the China Calcium Carbide Industry Association, calcium carbide capacity of 3.5 million t/a was eliminated or shifted to other products during 2016-2017. Nevertheless, capacity of around 9.0 million t/a was idle or only intermittently in production for much of 2017, accounting for 22% of the total capacity in China, and over 70 producers with 150 calcium carbide furnaces were involved. The overall operating rate of the calcium carbide sector was therefore only 67% (without deducting long-time idle units) in 2017. The capacity surplus is therefore still prominent. Although the proportion of all capacity that is air-tight calcium carbide furnaces has increased constantly and had already reached 85% at the end of 2017, the capacity of internal-combustion calcium carbide furnaces is still more than 6.0 million t/a. The sector will still face big pressure to mitigate the surplus capacity and adjust the industrial structure.
   2. Production costs increase drastically
   Environmental inspection has led to a rapid rise of raw material prices since the beginning of 2017. There are also other factors such as an increase of highway freight rates and a restriction on mining high-quality limestone. Most calcium carbide producers have difficult access to financing and tight working capital. Costs of safety and environmental protection have increased steadily. Profits of calcium carbide producers with no matched upstream/downstream facilities and no resource advantages are almost offset by these costs, and they are basically on the edge of loss.
   3. Downstream products are undifferentiated and consumption depends heavily on PVC makers
   The sector has expanded application sectors with some success. Capacity of some downstream products such as vinyl acetate, lime nitrogen and BDO has expanded. Due to considerable pressure from the macro economic decline and a slowdown of demand growth, however, their output growth is quite limited and offers little support to the demand for calcium carbide.
   The vinyl acetate sector reshuffled further in 2017. Vinyl acetate output increased somewhat in 2017, but as the output was quite small, its influence on the demand for calcium carbide was limited. In the first quarter, moving vinyl acetate inventory was difficult, producers had weak enthusiasm for production and operating rates were low. In May operating rates rebounded drastically and stayed high. At the end of August as most vinyl acetate producers in the United States suspended production due to a hurricane, China’s export volume increased sharply, and operating rates rose further. In October, constrained by excess capacity and slow sales, the operating rates of most vinyl acetate units were reduced. Sinopec adjusted its polyvinyl alcohol production plan. The polyvinyl alcohol unit of Chongqing Chuanwei Chemical Co., Ltd. ran at almost full load. The operation of the polyvinyl alcohol unit of Sinopec Great Wall Energy & Chemical Co., Ltd. was stable. With backing from the demand increase, the operating rates of vinyl acetate units in China in 2017 were much higher than before.
   China’s BDO capacity is in surplus, exceeding 1.74 million t/a in 2017. The capacity is mainly concentrated in Northwest China – the total capacity in that region is 1.06 million t/a. Sinopec Great Wall Energy & Chemical Co., Ltd., the biggest BDO producer in China, has a capacity of 200 kt/a. As product demand in the domestic market is limited, the implementation of the “One Belt One Road” policy and the active search for export channels by BDO producers can promote a drastic increase of the BDO export volume. However, the growth of BDO demand is presently much slower than the capacity growth.
   The market for lime nitrogen has been slack for some time. The market price in 2017 was always low. Most producers were idle or only intermittently in production, mainly because of limited demand. Most lime nitrogen producers in Ningxia were forced to stop production due to environmental problems. Owing to the reduced supply, prices of lime nitrogen started a steady increase and reached around RMB3 000/t at the end of 2017. The capacity of lime nitrogen is steady at around 2.0 million t/a, and its influence on the demand of calcium carbide is limited. R&D is being made in lime nitrogen consumption sectors today. Lime nitrogen producers will likely become the biggest growth point of calcium carbide consumption.
   Consumption of calcium carbide in making PVC still holds a leading position. Despite some recent diversification in consumption, around 80% of calcium carbide is consumed in the PVC sector. The PVC sector was sound overall in 2017, financial benefits of producers improved somewhat, and operating rates were kept high. PVC prices declined overall in the first quarter of 2017, and the prices of PVC made by the calcium carbide process once touched around RMB5 500/t, the lowest of the year. Starting from the second quarter, however, prices increased rapidly to RMB7 500/t, the highest of the year and the growth reached 73%, but the peak was brief. Prices started to drop once again at the end of the year, falling by RMB1 200/t. Caught unawares, producers were at a loss as to what to do.

Outlook for 2018

   In 2018 the calcium carbide sector should deepen supply-side structural reform, actively expand application sectors, mitigate surplus capacity, strengthen technical innovation, promote industrial optimization and upgrades, ensure stable economic functioning and use advanced technologies and administrative means to achieve better environmental protection.
   The sustained implementation of supply-side structural reform in the PVC sector can be hoped to promote the demand for calcium carbide. The PVC sector is innovating in its marketing. New applications such as PVC building templates have already been successfully developed. Owing to the templates’ advantages of excellent performance and long service life, they are hoped to replace traditional timber templates in the building sector. It is estimated that if 30% of the market volume is successfully captured, the demand for PVC will be 10.0 million tons higher. In this way, the consumption of calcium carbide could increase by 14.0 million tons, and the serious capacity surplus would be greatly eased.
   Downstream product lime nitrogen helps ameliorate acid soil. According to expert forecasts, around 10.0 million tons of lime nitrogen is needed in acid soil amelioration each year. With innovation of application technology, reduction of cost and support of preferential policies, therefore, lime nitrogen used in soil amelioration and sterilization will expand further and support the market for calcium carbide.
   The “One Belt One Road” strategy will bring historical opportunities to calcium carbide producers in their endeavors to enter foreign markets. Countries along “One Belt One Road” have a great population and a huge potential demand for petrochemical and chemical products. Their infrastructures and matched industrial systems are however not advanced. There is therefore a considerable space for capacity growth.
   Today, China is experiencing rapid development of industrialization and urbanization. The intensity of resource consumption keeps going up, aggravating the shortage of energy supplies. For example, the proven reserves of limestone in China exceed 50.0 billion tons, but high-quality deposits with development value are very rare and in a constant process of exhaustion. Due to environmental inspections, major producing regions started to restrict the mining of limestone in 2017. Many calcium carbide producers have to purchase poor-quality limestone from distant producing regions. The pressure of safety and environmental protection is also higher. The environmental protection cost and the production cost of calcium carbide producers will surely increase drastically in 2018. Producers that are unable to meet new requirements on safety and environmental protection will be forced to phase out. In the short term, it will increase production and operating costs of calcium carbide producers. In the longer term, it will help the calcium carbide sector to transform and upgrade and develop in the direction of greening, low carbon and safety.
   Overall, investment, production and consumption in the calcium carbide sector will gradually return to rational levels. Neither the market demand nor the consumption structure of calcium carbide will see big changes. The output of calcium carbide will continue its slow growth or basically level off. The sector will experience a new mode of meager growth.