The price of coal…..
Source of picture: www.guardian.co.uk
By John Richardson
A big shake-up in China’s chlor-alkali to carbide-based polyvinyl chloride (PVC) industry is underway which could have major implications for the global industry, we have been told by industry observers.
In a clear demonstration that it is better to be lucky as well as clever in this business (or if you cannot be clever at least try to be lucky), this could have a negative impact for importers.
The importers have benefited from the dire state of the local industry over the last couple of years, which, post-restructuring, might emerge as a great deal more lean and mean.
Global PVC capacity totals 40m tonnes with China accounting for around 20m tonnes of this, according to Maggie Zhu, markets analyst for chlor-alkali and PVC at Shanghai-based CBI - the research and analysis company.
“Capacity is a great deal more than demand and so operating rates are, as a result, at only 60-70%,” she added.
Coal and electricity prices have been increased which has put pressure on the less competitive producers, forcing their operating rates down and thereby allowing in greater volumes of ethylene-based vinyls imports.
Rising input costs are the result of what we discussed earlier this week: The drive to hit the 11th Five-Year Plan emissions targets.
But in the case of the heavily oversupplied chor-alkali and vinyls sector higher raw-material seem to also be about forcing the pace of plants closures and mergers and acquisitions.
A lot of consolidation has already taken place: In 2007, the average size of PVC plants was 100,000-120,000 tonnes/year and now it is 200,000-300,000 tonnes/year, Maggie added.
There are plenty of smaller plants still around, though, with capacities of as little as 15,000-20,000 tonne/year.
The most vulnerable to further restructuring appear to be the eastern coastal producers which still lack sufficient scale in chlor-alkali down to carbide-based PVC (the ethylene-based coastal PVC players such as Shanghai Chlor-alkali Chemical Co are a different proposition).
Coastal chlor-alkali-to-carbide players are a long distance from coal supplies and lack common ownership with coal mining and power-generation companies.
A long distance from where coal is mined obviously adds to logistics costs, whereas lack of common ownership with the miners and the electricity producers means raw materials are not priced on a captive basis.
So you could end up with mega chlor-alkali to carbide-PVC producers out west under the ownership of these raw-material providers.
China is investing huge sums of money in improving its road and rail infrastructure – meaning logistics costs and time to markets might come down.
Importers could therefore soon have to start worrying a great deal more about their landed costs in the big eastern and southern China consumption markets versus these new mega local players.