China PVC price gap widens on C2 rise

06 December 2004 00:01  [Source: ACN]

THE gap between acetylene-based polyvinyl chloride (PVC) and ethylene-based PVC prices in China has widened from the usual Rmb200-400/tonne to Rmb500/tonne in the past few months because of the high cost of ethylene, said Chinese PVC producers.

Some December deals for C2-based PVC were settled as high as Rmb8800-9000/tonne ex-factory last week, but most deals were concluded at Rmb8500-8700/tonne ex-factory. Acetylene-based PVC was available at Rmb8100-8200/tonne ex-factory. Deals were also heard at Rmb7800/tonne ex-factory, but these were said to be an exception.

One producer pointed out that the gap had started widening since the crude price spiral, which had in turn supported higher prices of ethylene and ethylene dichloride (EDC).

Ethylene was trading at US$1060-1100/tonne cfr NEA last week, a 32% increase from June, while EDC prices were at US$570/tonne cfr Asia, up from around US$400/tonne cfr Asia in Q1.

‘Ethylene-based producers are forced to keep PVC prices high and suffer from low margins, while acetylene-based producers have been able to maintain their margins,’ the producer said.

Market players said acetylene-based producers were enjoying a margin of Rmb2500/tonne as their cost of production was only Rmb5500/tonne.

However, one acetylene-based producer claimed its margin had been adversely affected by high salt prices (see box). ‘Our margin is now less than Rmb1500/tonne,’ he insisted.

Meanwhile, acetylene-based PVC producers have started targeting the non-pipe segments of the local market. In the past, their focus was only on the pipes sector, which did not have stringent quality requirements. However, many acetylene-based PVC producers were said to have improved product quality, which had enabled them to target other segments such as window frames.

The high margins enjoyed by acetylene-based producers had also resulted in an investment wave, with companies looking to either expand or build new facilities. While 300 000 tonne/year of acetylene-based capacity was added last year, the first producer believed that the figure for 2004 would be much higher.

One of the major expansions this year was by the Shandong Bohui Group, which expanded its plant to 200 000 tonne/year from 80 000 tonne/year last month.

Market players said the start-up of a number of acetylene-based capacities was the main reason import growth for PVC had not been as strong as for other polymers.

It is estimated that PVC imports in H1 2004 grew by about only 9% from H1 2003 to 913 858 tonne. In comparison, imports of high density polyethylene had risen by 27%.

But producers and traders said PVC demand continued to be stable, despite a slowdown of China’s construction industry after the government’s macroeconomic measures to prevent the economy from overheating.

Caustic soda up on salt shortage

A SHORTAGE of salt has pushed up caustic soda prices in China by 10-15% this year, said a major Chinese producer.

Chinese prices for caustic soda (diaphragm-based, 100% concentration) have increased to Rmb1400/tonne ex-factory, Rmb100/tonne higher than three months ago, another producer said. Caustic soda produced at ion-membrane units with 100% concentration was selling at Rmb1500-1600/tonne ex-factory, he added.

Salt prices in China more than doubled to Rmb400-500/tonne, compared with Rmb180/tonne in 2003.

But the rate of increase in caustic prices was slower because of the start-up of new capacities, said two producers. ‘Salt producers have not been making profits for the past ten years because of low prices. But demand from the chlor-alkali sector is growing fast,’ the first producer said. ‘Prices of salt are expected to keep rising. We are importing salt from Australia, Mexico, and India. It costs almost the same as that from China, but the quality is better.’

However, caustic soda prices outside China had risen faster. Formosa Plastics recently settled its contract price for H1 2005 with its Australian customers at US$275/tonne fob Taiwan, up from the H2 2004 settlement of US$125/tonne.

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