Review of China’s PVC Market
By Gu Yao

The market price of PVC (polyvinyl chloride) in China presented
an overall rising trend in the first half of 2006, but the growth
rate was not large. Performances of ethylene process PVC and
calcium carbide process PVC were different. Take the East China
market for instance, in the first half of 2006 the price of
ethylene process PVC increased from RMB6 500 per ton at the
beginning of 2006 to RMB7 050 per ton in June 2006. The price
of calcium carbide process PVC fluctuated at RMB6 105 - 6 825
per ton. In 2004, the price of ethylene process PVC was RMB7 950
- 8 550 per ton and the price of calcium carbide process PVC was
RMB7 600 - 7 950 per ton. In the first half of 2005, the price
of ethylene process PVC was RMB6 250 - 8 200 per ton and the price
of calcium carbide process PVC was RMB6 050 - 7 900 per ton.
   Changes of the PVC market in 2006 were resulted from various
factors such as raw material price and market supply/demand
status.

1.
Constant price rise of raw materials led to a sustained cost
increase in the PVC production

The price of crude oil rose greatly. Take the price of WTI crude
oil futures in New York for instance, the average price was
US$41.19 per barrel in 2004 and reached US$56.28 in 2005. The
average price even reached as high as US$70.55 per barrel from
January to June 2006. The price rise of naphtha caused by the
high price of crude oil led to price rise of petrochemical raw
materials.
   The price of ethylene increased drastically. The price of
ethylene spot goods in Northeast Asia was US$290-600 per ton CFR
in 2002, US$330-680 per ton CFR in 2003, US$620-1 310 per ton
CFR in 2004, US$600-1200 per ton CFR in 2005 and US$930-1200 per
ton from January to June 2006.
   With the constant price rise of ethylene, the price of EDC
(ethane dichloride) and VCM (vinyl chloride monomer) in overseas
markets also keeps going up. The average price of VCM spot goods
in the Far East market was US$464 per ton CFR in 2002, US$516
per ton CFR in 2003, US$623 per ton CFR in 2004, US$636 per ton
CFR in 2005 and US$634 per ton CFR from January to June 2006.
Unlike drastic changes in the ethylene price, the price of VCM
fluctuated almost within a narrow range in the first half of 2006.
The cost constitution of VCM raw materials is composed of
ethylene and chlorine with a ratio of 44:56. As the price of
chlorine is relatively stable, the impact of the ethylene price
on VCM is therefore reduced. Besides, the VCM market price is
closely related to China's PVC market trend. The demand of PVC
in the domestic market is weak in 2006 and the growth of the VCM
price is therefore also restricted. Compared with the previous
years, the sustained high price of VCM in 2006 has, however,
brought heavy pressure on the production cost of ethylene
process PVC. The situation of EDC is roughly the same as VCM.
   The price of calcium carbide was relatively stable. Raw
materials for calcium carbide mainly include limestone, blue
carbon and power. China, Northwest China in particular, has rich
resources of those raw material and low-priced power. The output
of calcium carbide in Northwest China and North China accounts
for nearly 70% of the total. As the price of those raw materials
is basically not influenced by the price of crude oil, the price
of calcium carbide is mainly determined by the market
supply/demand status and the raw material price change. The
capacity of calcium carbide has expanded rapidly in recent years.
The drastic capacity growth has resulted in an increasing
oversupply. The slack demand of PVC has also helped inhibit the
market price rise of calcium carbide.
   Owing to the price advantage in raw material and power in
Northwest China, the production cost of calcium carbide in the
region is the lowest and the ex-factory price is around RMB2 000
per ton. The output of calcium carbide in East China only
accounts for 4.4% of the national total whereas the output of
PVC accounts for 31%. Raw materials for calcium carbide process
PVC in East China mainly depend on resources in the north and
the price of calcium carbide delivered at the factory is RMB2
500-2 600 per ton. On the one hand, the price advantage of calcium
carbide has resulted in drastic increase of the PVC capacity in
the western region. On the other hand, the flow of low-priced
PVC from the western region has produced impacts on the PVC
market in the south and also on the PVC market in North China
and Northeast China. The effect on the market price of PVC is
negative.

2.
The price rise of PVC lagged behind the price rise of other
plastic resins

The five main kinds of general-purpose resins including PVC, PE
(polyethylene), PP (polypropylene), PS (polystyrene) and ABS
(acrylonitrile-butadiene-styrene) all take ethylene or
propylene as raw material and their production cost is directly
influenced by the price of ethylene and the price of crude oil.
Due to the impact from the price of chlorine and the competition
from the price of calcium carbide process PVC, at a time of
sustained high price of crude oil, the price growth of PVC is
lower than that of other general-purpose resins. The price of
crude oil reached US$75 per barrel in April 2006 and the price
of various resins had another increase to over RMB12 000 per ton.
The price of PVC however still maintained at a low level and had
a large price difference of RMB5 000 per ton compared with other
resins.

3.
PVC had a growth in output, a reduction in import, an increase
in export and a slight growth in apparent consumption

With the large-scale capacity expansion in 2004 and 2005, the
output of PVC in China has grown drastically. The output of PVC
reached 3.8752 million tons in the first half of 2006, an
increase of 26.2% over the first half of 2005.
   The import amount in the first half of 2006 was basically
equal to the import amount in the first half of 2005. The export
amount in the first half of 2006 was however much higher than
that in the first half of 2005, increasing from 35.4 thousand
tons to 266.6 thousand tons.
   The apparent consumption therefore reached 4.3633 million
tons in the first half of 2006, an increase of 12.4% over the
same period of 2005.

4.
The output of downstream products grew synchronously and the
supply and the demand of PVC were basically balanced

The slack transaction in the first half of 2006 gives us an
impression of soft downstream demand. Statistical data however
show that the production of PVC products in 2006 still grows
considerably. The consumption distribution of PVC in China is
roughly one third for profiles, 20% for pipes, 25% for artificial
leather (including wallpaper and flooring leather) and 10% for
communication cables. The consumption of PVC in these 4 sectors
accounts for around 88% of the total and can therefore basically
reflect the market trend of PVC downstream products. The
production situation of profiles and pipes was not satisfactory
in January and February 2006 and the output was lower than the
same period of 2005. The output was however recovered after March
and rose drastically in May and June. The output of artificial
leather was slightly higher than the same period of 2005. The
cost increase in the production of cable materials caused by the
drastic price rise of copper and DOP (dioctyl phthalate) led