High Cost Brought Pressure and Push to Chlor-Alkali
PVC Firms Reported Plunged Performance  

By Zhong Weike
China produced 4.876 million tons of PVC (polyvinyl chloride), 9.89 million tons of caustic soda and 75.93 million tons of calcium carbide in the first half of 2008, up 8.88%, 12.75% and 11.8% respectively.
    High cost brings new challenges to China's chlor-alkali firms, which is generally accepted by the members of China Chlor-Alkali Industry Association. From another aspect, high cost will become a pressure to help the merge in the chlor-alkali sector. The firms those upgrade their technologies and promote clean production will beat out others in the competition. High cost factors for this sector involve in coal, crude salt, crude oil, calcium carbide, power, logistics, environmental protection etc.     
    According to the data from China Chlor-Alkali Industry Association, the operation rate in 2008 will be lower than 60% due to the accelerated capacity expansion. More and more new facilities use the calcium carbide based technology to produce PVC. In China the PVC capacity using calcium carbide as feedstock accounted for 72% in 2007, compared with 50% in 2000, partly led by the rocketed ethylene price.
    The development of the PVC industry in western China dominated that in other regions, benefited from the cheaper feedstock. The firms located in central and western regions achieved a gross profit rate of more than 9%, such as Xinjiang Zhongtai, Hubei Yihua, Xinjiang Tianye and Ningxia Yinglite in the followed sheet.
   The PVC consuming sectors slowed down in 2008. "China's total PVC production capacity increased 32% over 2007," commented by Li Jun, CEO of Shanghai Chlor-Alkali Chemical Company Limited at the membership conference of China Chlor-Alkali Industry Association on August 26-28. "Whilst the demand from the consuming sectors has not given a strong support to the high growth of PVC capacity. The output growth of plastic preparations decreased vigorously."   
   Amid the various unfavorable factors, the PVC selling prices remained nearly unchanged in the past dozen months. Most firms rely on the profits from caustic soda business to offset the losses in PVC business.
    China has more than 160 PVC makers. Eighteen of which were publicly listed in the stock markets, seen in the sheet.
   Xinjiang Zhongtai Chemical Co., Ltd. (SZ: 002092) became the largest one among the eighteen firms with a PVC sale of RMB1.39 billion in H1. It manufactured 210 000 tons of PVC resin, up 35.77%, because a new PVC project in its subsidiary came on stream. On May 20th, 2008 the company started construction of the second phase 360 000 t/a PVC project and its matching 300 000 t/a ion-membrane caustic soda project in Zhongtai Chemical Industry Park, Xinjiang.  
   Shanghai Chlor-Alkali Chemical Company Ltd. (SH: 600618) gained a negative gross profit rate for the PVC business in H1, compared with 1.26% in 2007, although the company managers reported that the selling price of PVC went up. The increased prices of ethylene and crude salt offset the profit. The company located in the boosted economic municipality - Shanghai, therefore it suffered the lowest gross profit rate among the eighteen firms. The transportation control on chemicals also brought difficulty to the company despite near to consumers. The company sincerely reported that the investment outside contributed RMB78.27 million to the net income, mainly from share dividends of Huntsman Polyurethane (China) Ltd. and Ningxia West Polyvinyl Chloride Company Limited.
    The operation of Sichuan Jinlu Group Company Ltd. (SZ: 000510) was severely affected by the May-12 earthquake. Its PVC output has not been affected by the 20-day suspension, rose 9.54% to 142 thousand tons. But the disaster exactly caused a big loss of RMB48 million compared with the net income of RMB48 million in H1 of 2007.
   Shen Ma Industry Co., Ltd. (SH: 600810) reported a slight growth in net profit. The PVC business accounted for 33% in its sale, the polyamide business shared around 60%. The company manufactured nearly 120 thousand tons of PVC in H1, up 11.54%, and produced 128.8 thousand tons of caustic soda, up 15.06%.  
   Tangshan Sanyou Chemical Company Ltd. (SH: 600409) continued to expand production. The output of both PVC and caustic soda was 110 thousand tons in H1. The firm more than doubled the sale of PVC and caustic soda because it completed the expansion (from 100 000 t/a to 200 000 t/a) in July 2007.  
   Hubei Yihua Chemical Company Ltd. (SZ: 000422) recorded a net income of RMB362 million, the biggest among the eighteen firms, up 109%, which mainly came from its urea business. The gross profit rate fell by 5.1 percentage points from one year earlier, affected by the increased cost.
   The new 100 000 t/a PVC and 90 000 t/a caustic soda project of Ningxia YingLiTe Company Limited (SZ: 000635) passed the appraisals of safety, environmental protection and other administrative departments and came on stream in February 2008, and manufactured 44 300 tons of PVC as of June 30th. The gross profit rate of the company's PVC business in H1 ranked the first.
   The PVC sale of Shandong Haihua Company Limited (SZ: 000822) rose 134.9%, only next to Tangshan Sanyou. But the gross profit rate fell to 4.05% from 12% in H1 of 2007. From September CNOOC, China's third largest oil firms became the majority shareholder of Shandong Haihua through acquiring its former controlling shareholder - Shandong Haihua Group.
   The PVC paste resin sales of Shenyang Chemical Industry Company Ltd. (SZ: 000698) accounted one sixth of total sales. In H1 the company produced 64 000 tons of PVC paste resin. It more than doubled total net profit mainly by PVC paste resin, caustic soda, liquid chlorine, propylene and acrylic acid.
    Xinjiang Tianye Co., Ltd. (SH: 600075) posted a steady growth both in total sales and net profit. PVC on sales rose 57%. The gross profit rate of PVC business fell to 9.64% from 20.67% in H1 of 2007.
   Taiyuan Chemical Industry Company Ltd. (SH: 600281) reported a gross profit rate of 7.64% in PVC business, a drop of 6.83 percentage points.
   Nanning Chemical Industry Company Ltd. (SH: 600301) reported a drop of its net profit because of the increased cost of raw material, snowstorm and earthquake and overhaul.
   Nantong Jiangshan Agrochemical & Chemicals Company Ltd. (SH: 600389) mainly gained profit from pesticide business. The gross profit rate in PVC business was negative 0.23%, compared with 8.35% one year earlier.
   Yunnan Salt & Chemical Company Ltd. (SZ: 002053) recorded a thin profit in H1, down 89.5%. Interim production was the main factor. In June the new 100 000 t/a PVC and 100 000 t/a caustic soda project came on stream, which will help the company improve performance in the second half.
   Cangzhou Chemical Industry Co, Ltd. (SH: 600722) reduced loss in H1.
   Weifang Yaxing Chemical Company Ltd. (SH: 600319) continued its chlorinated polyethylene business, in spite of thin profit. It produced 20 thousand tons of PVC in H1.  
   Hebei Baosuo Company Limited (SH: 600155), included in the 2007 fiscal report, has not involved in PVC business this year.  
   Baotou Tomorrow Technology Co., Ltd. (SH: 600091), headquartered in Inner Mongolia, posted decreased sales in H1 and suffered a loss. Both the