Jiang Shunping, Calcium Carbide Industry Association of China
In 2021, the output of China's calcium carbide industry was about 30 million tons, an increase of 3.87% YoY. At the same time, calcium carbide price hit a record high, corporate efficiency improved significantly, and industry profits maintained rapid growth, all of which were laying a solid foundation for a good start in the 14th Five-Year Plan period (2021-2025).
Production and operation in 2021
1. The growing output, and the elimination of outdated capacity
According to the preliminary statistics of the Calcium Carbide Industry Association of China, there were 68 enterprises with a production capacity of more than 200 000 t/a, accounting for 87% of the total. 68 enterprises produced 26.3 million tons of calcium carbide in total, accounting for 87.6% of the total output. Among them, the top 10 enterprises produced a total of 9.95 million tons, an increase of 60 000 tons compared with the same period in 2020. The top 10 group companies produced 15.145 million tons (accounting for 42.8% of the total production capacity), an increase of 3.54% compared with the same period in 2020. In 2021, China's calcium carbide output hit a record high with about 30 million tons, an increase of 3.87% YoY. According to statistics, the export was about 100 000 tons in 2021, down 20 percentage points from 2020.
However, some of main calcium carbide producing provinces such as Inner Mongolia and Shaanxi still maintained a negative growth trend. Driven by high prices and considerable profits, provinces including Shanxi, Gansu, Ningxia, Qinghai, Sichuan, Hunan, Hubei and some others have maintained high growth rate, over 10%.
According to incomplete statistics, the production capacity of China's calcium carbide totaled 38.5 million t/a in 2021, amid 2.1 million t/a elimination of outdated production capacity, and about 600 000 t/a newly added production. Among 38.5 million annual production, there are 4 million t/a long-term shutdown or zombie production capacity and the actual effective production capacity is about 34.5 million t/a, with effective capacity utilization rate of 87%. In the future, some of the unqualified enterprises will be continually forced to withdraw from the market including those whose energy consumption, safety and environmental protection cannot meet the requirements and whose production capacity is 100 000 t/a or less. The elimination capacity is expected to be about 3 million t/a.
2. The improving calcium carbide market, and the record-high price
In 2021, the domestic calcium carbide market went up, bucking the trend and reaching a record high of RMB8 000/t as of mid-to-late October, an increase of about RMB5 000/t compared with the same period in 2020. It is estimated that the average price in 2021 increased by nearly RMB1 900/t compared with 2020. At the same time, the calcium carbide market continued its upward trend, despite the influence of the dual control of energy consumption policy, power and production restrictions and imbalance between supply and demand. Driven by the recovery of the PVC and other downstream products as well as the high price of raw materials, the price of calcium carbide has risen accordingly, creating a good condition for the overall profitability of the industry in 2021. See Figure 1 for details.
Figure 1 Price trend of China’s calcium carbide 2020-2021
3. Analysis of raw material prices and downstream industries
First, it was obvious that semi coke was significantly affected by the dual control of energy consumption policy. Its price had risen from RMB700/t (Exwork price) in the first quarter to RMB3 400/t in late September, a surge of nearly 400%. As a result, the cost of calcium carbide was forced to rise by RMB2 000/t. The price of calcium carbide became high in mid-October while enterprises had less raw material inventories. The high price didn’t have a downward trend until relevant departments conducted intervention on the market price of raw coal, then the price fell to about RMB1 500/t by the end of December.
Second, the price of PVC, the downstream products of calcium carbide, remained high throughout the year, which drove the high price of calcium carbide. The price of PVC surged from RMB7 000/t at the beginning of the year to RMB13 000-14 000 /t in late October, which was also the record high. Later, due to the shrinking downstream demand and the plummet in raw material prices, the price fell to RMB8 000-9 000/t at the end of December, a slump of nearly RMB5 000/t.
Third, other downstream products were also improving. Throughout the first half of 2021, the BDO market had shown a completely different trend from previous years, with ups and downs, complicated and confusing. In the second half, the BDO market had skyrocketed again, similar to the beginning of the year.
At the same time, the price and market of lime nitrogen and vinyl acetate products continued to improve, which to a certain extent drove the rapid recovery of the calcium carbide market and offered a strong support for the overall profitability of the calcium carbide industry throughout the year.
4. Analysis of industry profitability
The calcium carbide market has improved and the operating rate has further increased since 2018. Enterprises became profitable. However, due to the high costs of raw materials and other factors, enterprises’ profitability was relatively weak. According to incomplete statistics, the profit of calcium carbide was only tens of RMB/t in 2018, and in 2019, it didn’t get better or even a slight loss. The profitability hadn’t been further improved until 2020 and reached over RMB100/t. 2021 is a rare year when the price of raw materials kept rising, and the restrictions on calcium carbide products bear the brunt because the dual control of energy consumption policy became tighter and tighter. Calcium carbide production severely shrunk, which led to its soaring price and hit record high. According to incomplete statistics, the profit of calcium carbide in Inner Mongolia was RMB1 500-2 000/t (All the above refer to the gross profit price) at the end of September and most of October. In general, 2021 is the most profitable year in the history of the calcium carbide industry, repeatedly setting new all-time highs.
5. Policy assistance offers strong supports for the recovery of the calcium carbide industry
In order to achieve carbon neutral and carbon peak target (dual carbon), calcium carbide as "high pollution, high energy consuming and resources-based" industry will encounter plenty of policy restrictions. The natural properties of calcium carbide determine that it is completely dependent on coal and electric power resources, and will definitely become the focus of "carbon emission reduction".
On October 21, 2021, the National Development and Reform Commission issued the Action Plan for Strict Energy Efficiency Constraints in Key Petrochemical and Chemical Industries to Promote Energy Conservation and Carbon Reduction (2021-2025), proposing that by 2025, through the implementation of energy conservation and carbon reduction actions, more than 30% enterprises in oil refining, ethylene, synthetic ammonia and calcium carbide industries should reach the benchmark of production capacity. It specified that the standard of energy consumption of calcium carbide products should reach 940 kg standard coal/t and the benchmark should reach 805 kg standard coal/t
At the same time, the inefficient production capacity will be guided to withdraw from the market. Industrial Structure Adjustment Guidance Catalog and other regulations will be strictly implemented. Calcium carbide furnace with a single furnace capacity of less than 12 500 kVA and open calcium carbide furnaces should be phased out. At the same time, it is required that calcium carbide installations with a production capacity of 100 000 t/a or less should be shut down, and more efforts will be increased in disposing on spare and zombie capacity.
Newly added installations will be slowed down while outdated production capacities are eliminating and the industry's entry threshold is improving. It is said that there will be new production capacity come onstream in the next few years, but the time is uncertain. Considering the elimination continues to advance, it is estimated that the total production capacity of the calcium carbide industry may show a downward trend during the the 14th Five-Year Plan period (2021-2025). From the perspective of supply and demand balance in the next five years, the supply of calcium carbide will be tight for a long time. Based on the above analysis, the interaction of supply and demand will still be the decisive factor affecting China's calcium carbide market in the next few years. The overall market supply will maintain a tight balance, and the integrated production model of BDO and chlor-alkali will continue to increase.
Forecast on 2022
Calcium carbide industry will usher in another critical year in 2022. The current situation is still complex and severe. The COVID-19 pandemic is still spreading around the world, and the world economy is still undergoing deep adjustment. The recent China Central Economic Work Conference judged that China's economic development is facing the triple pressure of "shrinking demand, supply shocks, and weakening expectations". Therefore, it is clear that the economic work in 2022 should be based on the general principle of "stability prioritizes and seeking progress while maintaining stability".
First, from the perspective of supply and demand balance, in China, 80% of calcium carbide are used to PVC production, and about 5% of that used to BDO production. According to the incomplete statistics of Calcium Carbide Industry Association of China, several projects with a total capacity of 2.5 million t/a acetylenic aldehyde BDO will be put into operation in the next two years, and projects with more than 4 million tons of BDO is planning in the long run, which may be a growth point for the demand of calcium carbide in the future. According to the statistics of China Chlor-Alkali Industry Association, the PVC production capacity in 2021 was 27.125 million t/a. Of all the applied method, the calcium carbide method reached 20.905 million t/a, accounting for 77% of the total production capacity. In the next two years, it is expected that projects with a capacity of about 1 million t/a of PVC applied calcium carbide method will come online. Also, 1.4 million t/a will be put into operation based on market condition in the next few years. The production of the above projects will require about 4 to 5 million tons of calcium carbide, and more than 6 million tons will be required in the long run.
According to statistics, in the next few years, calcium carbide projects with a total capacity of more than 4 million t/a will be put into operation one after another, more than 80% of which are self-supporting downstream products. In the long run, there will be 4-5 million t/a under planning, all of which are self-supporting projects. However, due to the dual control of energy consumption and dual carbon policies in various places, those project remain to be considered. Further, it is rare to have brand-newly added projects except for projects with equivalent replacement or reduced conversion.
At the same time, the national industrial policy will be further tightened in 2022. China authorities released several documents to resolutely curb the blind development of "high pollution, high energy consuming" projects and ensure that the carbon peak target will be achieved on schedule. Enterprises with production capacity less than 100 000 t/a, and those whose energy consumption cannot reach the required total 10% of production capacity will be forced to withdraw from the market. The reference documents are Industrial Structure Adjustment Guidance Catalog, Several Opinions on Strict Energy Efficiency Constraints to Promote Energy Conservation and Carbon Reduction in Key Fields (NDRC [2021] No. 1464), Energy Efficiency Benchmarks and Standards in Key Fields of High Energy-consuming Industries (2021) (NDRC [2021] No. 1609) and others.
To sum up, the supply of calcium carbide will be further in a tight balance in the next two years.
Second, from the perspective of indicator forecasts, in 2022, National Development and Reform Commission will introduce stricter dual control of energy consumption policies, and local governments may issue much more stringent detailed implementing regulations based on NDRC policies. For newly-added and reconstruction projects, the requirements will be more stringent. At the same time, the Emission Standard of Air Pollutants for Lime and Calcium Carbide Industry will be released at an appropriate time during the year. It requires that newly constructed enterprises should implement this standard from April 1, 2022, and nitrogen oxide emission limits should reach 300mg/m3 in lime kilns and carbon drying kilns. In “26+2”cities (referring to Beijing, Tianjin, and surrounding regions), the regulation will be even stricter. It is predicted that calcium carbide production will still be subject to power and production restrictions in the future. Considering downstream products demand and the new projects coming onstream successively, the supply of calcium carbide will be in a tight balance. The market and price mainly depend on downstream products’ price trend such as PVC, BDO, raw coal and so on. In general, the price of calcium carbide will fluctuate with raw materials, but it is expected to maintain a reasonable level and won’t wildly fluctuate, and the output will have a slight growth or remain flat.
