Significant reduction in PVC imports in Asia's largest PVC market

Significant reduction in PVC imports in Asia's largest PVC market - China

China is perhaps the most important market in the global vinyl�s sector, being by far the biggest producer, importer and consumer of PVC. It has seen dramatic changes in the structure of its PVC market over recent times as per Harriman Chemsult Ltd. After declining for many years, PVC imports have recently seen a strong rebound, while exports have fallen equally sharply. As domestic demand has also retreated severely amid the global downturn, production levels within China have reversed dramatically. In addition, costs and margins have radically changed, mainly to the detriment of acetylene-route PVC manufacturers. Thus the landscape of the PVC market in China after mid-2009 is fundamentally different from that of 2007 or early 2008. As per ICIS, China's PVC capacity was expected to hit 20 mln tons in 2010 from 17.5 mln tons in 2009 and 16 mln tons by 2008. However, production rate so far has been around 50% of capacity. Coal/acetylene-based PVC plants in China saw big output cuts in 2009 because the drop in oil prices made ethylene feedstock more economical. PVC production in China is largely based on coal, which is being encouraged because this natural resource is available in abundance. In China, the average capacity of a PVC plant is less than 100,000 tons, compared to 150,000 tons in Japan and 300,000 tons in USA. It is quite possible that consolidation of smaller PVC producers in China in the near future will make them more globally competitive. The major PVC producing nations of Asia- South Korea, Taiwan & Japan, have about 2.5 mln ton surplus capacities, currently find China a large market. However, as demand rises and production capacity utilization rises (sometime in 2011), China will drastically reduce imports of PVC, causing export issues in the three Asian countries. China, the biggest market for PVC in Asia, has been significantly cutting back on its imports in 2010. Construction activity in China is starting to slow down in line with government's efforts to cool down an overheating property sector. PVC demand in China is expected to grow at 5%, barely half the expected 11% expansion of the economy this year. Government measures included restrictions on pre-sales of property by developers, a halt on loans for purchases of third homes and an increase in the minimum mortgage rates and a tightening of financing requirement for second-home purchases. Demand from home buyers may continue to soften over the rest 2010.
As per a report by Freedonia, demand for PVC in China will rise 8% pa to 12 mln tons in 2010, primarily driven by healthy (although moderating) growth in construction expenditures, as well as by advances in consumer spending and the growing share of plastics in packaging applications. In 2005, China consumed 8.2 mln tons of PVC, surpassing the US to become the largest consumer of PVC in the world. Extrusion is the most important process used to manufacture PVC products in China, with extruded products projected to make up more than half of the market in 2010. This growth reflects good opportunities for PVC in the construction market, which accounted for more than 70% of extruded products demand in 2005. The second largest use, molded products, will grow more than 6% pa through 2010, based on strong demand in packaging applications. Increasing growth in synthetic leather production will drive demand for dispersion coated PVC, which will be the fastest growing use through 2010.
The Chinese petrochemicals market is set to recover strongly in H1-10, but tighter fiscal and monetary policy aimed at curbing inflation will lead to a moderation in demand growth in H210 and threaten oversupply and low prices, according to BMI�s latest China Petrochemicals Report. BMI sees the petrochemicals market following GDP growth rates, rather than the above-trend rates seen in recent years. Government attempts to tighten lending could have a significant effect on petrochemicals demand and pricing, with the potential of a decline of up to 6% in polymer imports, according to BMI research. Easy lending conditions have in the recent past enabled speculation on commodity chemicals as well as real estate, which has helped boost Chinese polymer demand. This speculation has sometimes led to cargoes being sold at below cost, thereby keeping overall petrochemicals pricing down. Credit has also sustained consumer demand for finished products that utilise petrochemicals, as well as the housing sector, which also creates demand for home furnishings. If a tighter monetary policy with high interest rates strengthens the Yuan, it could moderate the impact of a decline in import demand while weakening export competitiveness of finished goods. Overexpansion of polyvinyl chloride (PVC) production in China in recent years has led to a market imbalance. Demand for PVC has been rising in recent years because of increased consumption from the chemicals and construction industries. However, the China Chlorine-Alkali Industry Association says there will soon be too much PVC, with capacity set to rise by 1.14mn tpa in 2010 on top of the 3.09mn tpa added in 2009. In response to concerns raised in industry circles, the China Petroleum and Chemical Industry Association (CPCIA) have set out plans for the restructuring of the petrochemical industry. The emphasis will be on the production of high-end products and reducing the excess capacity in low-end products. In Q4-09, Chinese authorities began rejecting projects in the petrochemicals sector as well as other industries as they try to curb chaotic overinvestment, which the government worries could lead to economic trouble. If implemented, the strategy could lead to the cancellation or delay of two or three ethylene crackers and associated downstream units.