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23 January 2006

Troubles in the PVC industry

  Polyvinyl chloride (PVC) production in China has been increasing in recent years making Chinas PVC production capacity and demand seriously unbalanced. Bad competition among enterprises led to a fall in prices and an increase in the number of enterprises in the red. In addition, in order to secure more business opportunities in Chinas PVC industry, foreign businessmen stepped up launching plants, which caused many problems.


The blind expansion led to an excessive production capacity of PVC. Led by high consuming sectors including chemical, building and daily use products, the market demand for PVC, the synthetic general resin grew. China Chlorine‑Alkali Industry Association announced that China produced 5.03 million tons and consumed seven million tons of  PVC in 2004 bringing the gap to 1.97 million tons.


Consequently new PVC projects were started all over the country. In addition, China implemented an anti‑dumping policy towards products from the United States, Korea, Japan, Russia and Taiwan in 2003, which gave enterprises the chance to recover. According to statistics from China Chlorine‑Alkali Industry Association and the National Development and Reform Commission, Chinas PVC production has grown over 50% in the past two years, the number of enterprises has grown from 70 to 90 and the total production capacity will top 9.8 million tons and is predicted to rise to 11.5 million tons towards the end of 2006. Consumption is, however, predicted to be only eight million tons in 2005 resulting in an oversupply of production capacity.


Of greater concern is the fact that the production capacity has not been released yet affected by factors including raw materials, technology and energy, but the heated construction has not yet cooled down. Some regions and enterprises plan to double the production capacity in the next three to five years neglecting the production conditions. Many regions in middle and western China are planning to build production bases. The calcium carbide production base in Inner Mongolia Dalad Banner, Jungar Banner and Otog Banner plans to build 500,000‑1,000,000 PVC production base. Shenhua Group plans to build one million ton polyester production in Inner Mongolia Dalad Banner. The first phase 400,000‑ton production project has started.


The industrial distribution is dispersed and technology structure is simple, which is the second big problem facing the PVC industry. Currently, 26 provinces and autonomous regions including Shandong, Shanxi and Inner Mongolia have more than 90 PVC plants, 32% of them have an annual production capacity of 100,000‑200,000 tons and 35% of them have an annual production capacity of over 200,000 tons. The dispersed industrial distribution and low level repetitive construction has led to low competitiveness.


The industrial technology used by the PVC sector includes ethylene, calcium carbide and dichloroethane cracking. Dichoroethane cracking is the most advanced, but the raw materials need to be imported, so Chinese enterprises seldom adopt this technology. Ethylene technology is mature and is adopted by most foreign enterprises, but it takes oil as its raw material, so the production cost will become higher with the rise of oil price due to the tight supply. Some middle and western provinces and autonomous regions including Shanxi and Inner Mongolia boast big output and the enterprises there usually adopt the method using calcium carbide. The production cost for this is usually RMB1,000 per ton lower than the ethylene method, and the proportion of enterprises adopting the calcium carbide method rose reaching 56% in 2003 and 70% in 2004. Among the new 3.1 million production capacity in 2005, 60% of enterprises adopted the calcium carbide method; the proportion will continue to rise in the future.


By our correspondent Ya Dun

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