2005 Review of China's PVC Sector


By Gu Yao


After antidumping measures taken in May 2003, the PVC (polyvinyl
chloride) market in China has a sustained growth for nine
consecutive months. The market price of ethylene process PVC and
calcium carbide process PVC reached RMB8 700 per ton and RMB8
600 per ton respectively at the beginning of February 2004,
followed by a temporary reduction during the Spring Festival,
increased to RMB9 500 per ton and RMB9 250 per ton at the end
of August 2004 and came down to RMB8 000 per ton and RMB7 750
per ton at the end of 2004. In 2005, after a drastic fluctuation,
the market price of ethylene process PVC and calcium carbide
process PVC maintained at RMB6 450 per ton and RMB6 350 per ton
respectively at the end of the year. The market trend in 2005
was just opposite to the market trend in the previous two years.
The reason is that quite a few abnormal phenomena happened in
the PVC sector in 2005 that summarized as follow:


1. Drastic expansion of production capacity  


Antidumping measures taken in 2003 provided an opportunity for
the development of the PVC sector in China. An unprecedented
upsurge of capacity expansion, however, also appeared. Many
construction and expansion projects were launched and both the
output and the capacity had a drastic increase.
   There was a great capacity expansion from 2004 to 2005 and
the growth in 2005 was more than 2004. The capacity was 6.638
million t/a in 2004, an increase of 30.2% over 2003 and the output
was 5.03 million tons, an increase of 18.6%. The capacity
increased to 9.80 million t/a in 2005, an increase of 47.6% over
2004 and the output was 6.49 million tons, an increase of 29.0%.
It is obvious that the new capacity in 2005 was much greater than
2004 and the market supply amount in 2005 was therefore higher
than 2004.   
   The monthly output in the first half of 2004 was maintained
at 400 000 to 410 000 tons, which presented a sustain increase
and reached 460 000 tons at the end of 2004. The monthly output
in the first quarter of 2005 was maintained the same level as
the end of 2004, increased considerably in the second half of
the year and reached 600 000 tons at the end of 2005. The rapid
capacity expansion led to a fast output increase, creating
pressure on market absorption and also the market price. It is
obvious that the output increase in March 2005 and the output
increase in October 2005 were the major factors for the drastic
price drop during the period between March to May and September
to November.


2. Calcium carbide process PVC dominates the market


The PVC production in China was mainly based on the calcium
carbide process prior to 1990s. Ethylene process PVC units
started to be constructed in the early 1990s. Nevertheless,
there is still a deficit of ethylene resources in China. Only
440 000 tons of ethylene was used in the PVC production in 2004,
accounting for 7% of the total ethylene output. Great quantities
of VCM (vinyl chloride monomer) and EDC (ethylene dichloride)
began to import from abroad for the PVC production in 1998. The
ethylene process PVC production had a rapid development, but was
still restricted by the amount of import.
   The output of calcium carbide process PVC has been maintained
approximately half of the national total since 2000. As the
calcium carbide process PVC became well developed and there is
a guarantee of the raw material availability, the capacity
growth of calcium carbide process PVC holds a major proportion
in the upsurge of capacity expansion in the past two years. The
capacity of calcium carbide process PVC accounted for more than
90% of the total 1.4 million t/a incremental capacity in 2004.
The proportion remained the same in 2005. Among total output of
PVC in China, the proportion of calcium carbide process PVC
increased to 59.40% in 2004 and further to 64.56% in 2005. It
is obvious that calcium carbide process PVC held a very important
position in the domestic market in 2005. Due to the drastic price
rise of crude oil, the price of petrochemical raw materials also
has an increase and the cost of the ethylene process PVC
production has hit the highest historical record. Calcium
carbide used as the raw material for the calcium carbide process
PVC production is not affected by the crude oil price. The cost
of the calcium carbide process PVC production has an advantage
under the present situation. Calcium carbide process PVC not
only be able to bear a higher price reduction, but it can also
take partial market occupied by ethylene process PVC. There is
however no improvement in the market price trend. In terms of
geographical location, the capacity expansion was contributed
by in Shandong province, Inner Mongolia and Xinjiang in 2004 and
was still contributed by these regions plus Hebei province and
Tianjin in 2005.


3. Upstream demand growth was greater than downstream demand


The PVC market in China in 2005 gave people an impression that
the market transactions were only average during brisk seasons.
Many people thought that the downstream demand was reduced in
2005. However, statistical data showed that the output of PVC
processed products in 2005 still has a considerable increase
compared with 2004.
   In China, within the consumption of PVC, the demand in
profiles accounts for one third of the total PVC market demand,
the demand in pipes accounts for 20% of the total PVC output and
the demand in artificial leather (including wall paper and
flooring leather) accounts for a quarter of the total PVC market
demand. The output of profiles, pipes and artificial leather was
2.367 million tons, 1.988 million tons and 674 000 tons
respectively in 2005, an increase of 13.3%, 23% and 7.3% over
2004.
   An outstanding feature in 2005 was that in spite of a
considerable increase in the output of processed products, the
output growth of PVC was higher than the output growth of
processed products, and the output growth of calcium carbide was
much higher than the output growth of PVC. The output of PVC was
6.49 million tons in 2005, an increase of 29.0% over 2004 and
the growth was significantly higher than the output growth of
processed products.
   The output of calcium carbide was 8.946 million tons in 2005,
an increase of 33.9% over 2004. A total of 69% of calcium carbide
is used in the PVC production. The oversupply of calcium carbide
determines that the price of calcium carbide will have no
increase. The calcium carbide process PVC production has a cost
advantage and also the ability to bear a relatively low market
price. The drastic increase of PVC resources shadowed the output
growth of processed products in the market in 2005 and people
got a feeling of slack transactions.


4. Import was reduced and export was increased


After antidumping measures taken in May 2003, the trading mode
related to the import of PVC had a great change. The monthly
import amount in general trade (mainly for sales in the domestic
market) had a drastic drop from around 100 000 tons in the past
to around 50 000 tons in May 2003, decreased to 5 000 - 10 000
tons in May 2004 and further down around 2 000 - 4 000 tons in
2005. With the addition of high antidumping tax, the cost of
imported PVC resin can hardly compete in the market. Processing
trade modes are exempt from t