By Zheng Jiebin, China Chlor-Alkali Industry Association
Rational capacity ramp-up shores up average production scale
In the first half of 2020, the gains in chlor alkali industry decreased significantly year on year due to the outbreak of COVID-19. By the end of June, there were 161 caustic soda producers in China and the capacity totaled 44.22 million t/a, an increase of 420 kt/a compared with the end of last year; there were 73 PVC producers, and the capacity reached 25.58 million t/a by adding calcium carbide-based capacity by 400 kt/a. Table 1 and Table 2 show the details.
The average capacity of caustic soda producers increased from 220 kt/a in 2013 to 275 kt/a recently, and that of PVC increased from 270 kt/a in 2013 to 350 kt/a, reflecting that producers are generally upsizing.
Decreased output of core products, lower operating rates
From January to June 2020, the output of domestic caustic soda totaled 16.998 million tons, marking a year-on-year decrease of 2.3%; that of domestic PVC was 9.688 million tons, down by 3.2% from the same period of last year. The operating rates decreased, to 77% for caustic soda and 79% for PVC. Table 3 shows the monthly output of caustic soda and PVC in the first half of 2020.
Caustic soda prices keep falling, PVC market fluctuated
The domestic caustic soda market was in a downside in the first half of the year, and the average price of 32% ion-exchange membrane caustic soda decreased by RMB131/t (see Figure 1 for details). The downside was accelerated during March and April. A rally in the downstream alumina market gave support to the caustic soda market from June. However, due to multiple factors such as weak exporting of end-user products and sluggish domestic market, the operating rates of domestic paper and chemical fiber industries were low, thereby showing lackluster demand for caustic soda.
Figure 1 32% Ion-exchange membrane market trend 1H2020
The domestic PVC prices fluctuated frequently in the first half of the year, exhibiting a "V" shape (see Figure 2 for details), which was mainly attributed to low operating rates of downstream plastic converters during the epidemic. The weak demand pulled down PVC prices. Some chlor alkali producers consequently brought forward or extended the spring maintenance plan, which eased the supply-demand pressure to a certain extent. At the beginning of April, the domestic PVC market showed signs of recovery, but the price rise was very limited. May saw a broad economic recovery, which led to an effective relief in the inventory pressure and hence a clearer picture of price rises.
Figure 2 PVC market trend 1H 2020
Export volume of caustic soda and PVC decreased, import volume of PVC increased significantly in May
From January to June 2020, China's export volume of liquid caustic soda was 162.8 kt, taking a year-on-year decrease of 38%; that of solid caustic soda was 313.4 kt, up by 9% year on year. The total export volume of caustic soda was 476 kt, down by 13% from the same period of last year (see Table 4 for details). During the period, the liquid caustic soda exports were mainly headed to Australia, Indonesia, Thailand, Singapore, and India, while the solid caustic soda exports were shipped to Indonesia, Vietnam, Nigeria, Russia, Uzbekistan, and Kazakhstan.
From January to June this year, China's import volume of powdered PVC was 452 kt, an increase of 30.3% over the same period of last year. The United States, Taiwan, Japan and South Korea remained the major origins, while the volumes from Indonesia, India and Thailand increased significantly compared with previous years. The export volume of domestic powdered PVC totaled 246 kt, down by 10.5% compared with the same period of last year. The exports were mainly headed to Central Asia and Southeast Asia, and the exports to India decreased sharply. See Table 5 for details.
“Alkali chlorine imbalance” still exists, but has been alleviated
In recent years, with fast growth of downstream industries led by alumina, the consumption of caustic soda in China has increased sharply while that of chlorine has risen at a slow pace, leading to imbalance in alkali and chlorine. The liquid chlorine market has improved this year. Figure 3 indicates the comparison of the market trends of liquid chlorine and caustic soda in the first half of the year.
Figure 3 Market trends of liquid chlorine and caustic soda in 1H 2020
Market outlook 2H 2020
The caustic soda market will be affected by many factors in the second half of 2020. The operating rates will stay high and output will remain stable. An increase in imported bauxite will lead to a reduction in the alkali consumption from downstream alumina, and the alumina market is choppy, which means that the demand for caustic soda will change from time to time. At the same time, alumina producers will face many uncertainties as the industry is officially regulated for the air controlling. So far, some domestic caustic soda producers have been in the red, which will further ignite the battle between producers and users in the second half of the year.
The domestic PVC market will focus on two points in the second half of the year. First, the supply-demand balance will change if the expansion projects are put into operation in the second half of the year. Secondly, the international epidemic situation is greatly affecting the export of domestic powdered PVC and downstream products, while the import volumes of overseas ethylene-based PVC are increasing. If the imports of powdered PVC in China remain high, the domestic PVC market will lose its ground.