2006 Review of China’s PVC Market
By Gu Yao

1 Capacity Increased rapidly

China’s PVC (polyvinyl chloride) sector continued to develop
rapidly in 2006. The PVC production capacity was 12.84 million
t/a in 2006, an increase of 31% over 2005. PVC produced using
the calcium carbide process accounted for 73.36% of the total.
The output of PVC was 8.238 million tons in 2006, an increase
of 26.9% over 2005, and the apparent consumption was 9.191
million tons, a rise of 14.8%.
   The production capacity and output of PVC both continued to
increase rapidly in 2006. However, the growth rate of apparent
consumption of PVC in 2006 was slightly lower than that in 2005
due to the constant decrease of imports and dramatic increase
of exports. Also, the demand for PVC in downstream products,
especially pipes and profiles, increased considerably in 2006.
Compared to 2005, the output of profiles and pipes in 2006
increased 30.9% and 20.6% respectively. The demand for PVC in
the production of profiles and pipes accounts for over 50% of
the total PVC demand.

2 Imports declined and exports increased

Antidumping measures in 2003 provided an opportunity for the
development of the PVC sector in China. China's output of PVC
increased rapidly in 2006, leading to substitution for some
imports and an increase of exports. The amount of PVC imported
to China was 1.452 million tons in 2006, a drop of 12.6% from
2005. Since the fourth quarter of 2005, the exported amount of
PVC has increased considerably. The Ministry of Commerce and
Industry of India announced on June 28th, 2006 that it would
start dumping investigation into suspension-process PVC
imported from Taiwan province, China, Indonesia, Japan, Korea,
Malaysia, Thailand and the United States. (CCR 2006 No.21) The
Turkish Government also announced on August 15th, 2006 that it
would levy a US$320/t deposit on PVC originating from China. The
export of PVC in the fourth quarter of 2006 was therefore
affected. However, China's exported amount of PVC still reached
499.4 thousand tons in 2006, an increase of 233.8%.

3 Calcium carbide process PVC dominates the market

Among total output of PVC in China, the proportion of calcium
carbide process PVC increased to 59.40% in 2004 and further to
68.5% in 2006. It is obvious that calcium carbide process PVC
held a leading position in the domestic market in 2006. Due to
the drastic price rise of crude oil, the prices of petrochemical
raw materials also increased, and the cost of ethylene process
PVC production remains high. 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 therefore has an advantage in the present
situation. Restricted by price of carbide process PVC, in spite
of the price rise of crude oil and ethylene, the price of PVC
using the ethylene process did not show the same dramatic
increase to over RMB11 000 per ton that the other plastic resins
did. With support from the cost in PVC production using the
ethylene process, the price of PVC could not fall. The calcium
carbide process held a dominant position in the market price
trend, and the price of PVC produced with the ethylene process
could only have passive readjustments.

  4 The price difference of PVC between the ethylene process and
the calcium carbide process fluctuated greatly

The quality of PVC made by the ethylene process is superior to
that of PVC using calcium carbide process, the price difference
of PVC between the ethylene process and the calcium carbide
process is RMB200/t at normal time. However, the price
difference changed time after time in 2006. The output of PVC
products decreased in the first two months of 2006, and the
consumption of PVC dropped drastically. The price of PVC made
by the ethylene process remained stable due to the support from
the cost, the price of PVC made by the calcium carbide process
decreased drastically, and the price difference between the
ethylene process and the calcium carbide process reached
RMB550/t. Downstream processing companies preferred to use
calcium carbide based PVC as a raw material, and the market share
held by ethylene based PVC dropped drastically. The PVC
companies using ethylene process had to reduce the price in order
to narrow the price difference. The market situation turned
better from the end of March 2006, the price of PVC using calcium
carbide process rebounded, and the price difference narrowed to
RMB200/t at the end of May 2006. In mid-August 2006, in spite
of the drastic price rise of PVC using ethylene process, the
price of calcium carbide process PVC increased even faster, and
the price difference decreased to RMB50/t. In September 2006,
China's PVC output increased rapidly, causing the drastic price
drop of calcium carbide process PVC. The price difference
increased to RMB810/t again at the end of September 2006, and
the price of ethylene based PVC had to fall but the price
difference did not narrow. In the fourth quarter of 2006, PVC
companies using the ethylene process faced difficulties such as
the price drop of PVC using calcium carbide process and a
constant increase of the production cost, and had to reduce their
operating rates. The price difference of PVC between the
ethylene process and the calcium carbide process therefore
maintained at RMB250-350/t.

  5 Price basically remained stable

In 2005, the price of PVC saw an overall decrease. The price of
PVC remained stable in the first quarter of 2005, dropped
drastically in the second quarter, rebounded in the third
quarter, decreased drastically in the fourth quarter, and
stabilized at the end of 2005. The PVC market turned better and
did not fluctuate greatly in 2006 due to the growth of both supply
and demand being basically the same. Take the East China market
for instance, The market price of ethylene process PVC and
calcium carbide process PVC was around RMB6 600 per ton and RMB6
400 per ton respectively at the beginning of 2006, followed by
a dramatic increase in the third quarter of 2006, and came down
to RMB7 000 per ton and RMB6 615 per ton at the end of 2006.
   The PVC production capacity will continue to increase rapidly
in 2007, and the output is expected to reach around 10 million
tons. With the advance in technology, China's quality of PVC will
improve considerably, and will take the place of some imports.
The exported amount of PVC will also continue to increase rapidly.
In spite of various difficulties, the demand for PVC will
continue its high growth. The Chinese government has implemented
policies to restrict the fixed asset investment, and some new
construction projects have been suspended. However, the demand
for pipes and profiles will still maintain high growth. With the
coming of the Beijing Olympic Games, many construction projects
are expected to be completed in 2007, requiring a large quantity
of PVC products. It is expected that the demand for PVC products
will continue to maintain double-digit growth in 2007, and the
PVC market will hopefully remain stable.


Major PVC Producers in China in 2006 (thousand tons)
Producer                               Output
Tianjin Dagu Chemical Industry Co.   &nb