12The importance of imports in China 900060Imports126.96.36.1996.18000Production50% Imports70006000405000Production/Imports (000mt)% Imported30400030002020001010001990199119921993199419951996199719981999200020012002200320042005
13Implications of Chinese PVC self-sufficiency There are two implications: a) increasing availability of Chinese exports and b) more importantly, a dislocation effect for existing suppliers.Until recently the prospect of Chinese PVC exports of consequence was not an issue.The drop in domestic prices in China, however, has prompted some coastal producers to export material.The small scale of this trade means that this is currently more of a psychological, rather than volume, issue, but it does illustrate the change in the complexion of the Chinese PVC balance.There will be an intermediate phase where PVC flows both in and out of China, but over the longer term there is the spectre of Chinese exports occurring on a more structured basis.
14Implications of Chinese PVC self-sufficiency Changes in the pattern of PVC trade into China have the potential to cause a ripple effect around the world. Possible scenarios include:Increased Asian exports to the west coast of the USAIncreased Asian exports to India and the Middle EastA subsequent dislocation impact of material from these areas potentially affecting Europe.In terms of dislocation, the major victims will be countries like South Korea, Taiwan and Japan.The perception of acetylene-based PVC is also changing. Although certain producers manufacture questionable quality material, the newer plants are able to offer a credible export alternative to ethylene based PVC.
15Sources of Chinese PVC imports 2003 Other Asia 3%Thailand 7%Indonesia 4%Japan 24%Taiwan 29%South Korea 11%Asia78%Others22%Europe 10% (largely Russia)North America 9% (mostly USA)Others 3%
16Importance of China as a PVC destination 100%USAIndonesiaThailandMalaysiaSouthKoreaJapanTaiwan90%80%70%55147021360%50%40%30%123520%10%0%% ROW% China
17Importance of China in World PVC trade 30World ImportsChina Imports25% China20Imports (mt)% China1510519901991199219931994199519961997199819992000200120022003
18Chinese PVC capacityOne of the misinterpretations of the development of the Chinese industry has been the belief that the acetylene route is a) an old technology and b) that is places limitations on plant capacity.Both these myths have been dispelled. The majority of new expansions in China are acetylene-based and the size of new acetylene plants is now well into the ,000mt/year scale.The Western model of integrated cracker-vinyl plants has not really evolved in China because of the success of the acetylene route and the reluctance of olefin producers to get involved with chlor-alkali.
19Average PVC plant size by region 2005 400347300200149117101100AsiaWorldAfricaNorthAmericaWesternEuropeLatinAmericaOceaniaEasternEuropeMiddle East
20Average Asian PVC plant size 2005 3503273002502001601501179710050AsiaAsiaChinaJapanIndiaTaiwanSouthExcl. ChinaKorea
21Chinese limiting factors The development of the vinyl industry in China is not without its growing pains. These can be summarised:Economy – outside of the coastal regions, China is fundamentally a rural economy.Logistics – there is a problem in China, with a domino-effect of getting product out of the market: this has underpinned the development of the acetylene route as you also can’t move ethylene/EDC/VCM any distance in inland China.Caustic soda – logistics also affects the movement of caustic soda, which is largely sold as a 50% solution. This can inhibit operating rates at chlor-alkali plants.Raw material shortages – power, salt and ethylene
22Regional production costs 35019992001200220032004200530025020015010050MiddleBrazilWesternEuropeChinaJapanUSAEast
23Regional power cost range 2005 35030025020015010050MiddleBrazilWesternChinaJapanUSAEastEurope
24Chinese salt trade balance 1500+9111000500-500-1000Exports-1500ImportsNet trade-2000-1345-25002001200220032004
25New Asian PVC projects by feedstock type VietnamPhilippinesIndonesiaJapanThailandSouth KoreaIndiaChina Mer.Ethylene 2%ChinaUnspecified26%Acetylene24%China VCMImp. 9%ChinaEthylene – 26%ETHYLENEOTHERS50%50%
26Chinese capacity by location and region NORTHWEST6%28%NORTHEAST37%ALL CHINAEAST24%AcetyleneEthyleneMerchant ethyleneImported EDCSOUTHImported VCM6%
27Future capacity in China by type Acetylene28%Ethylene29%Merchantethylene3%Imported VCM10%Unspecified30%
28Acetylene-based PVC economics Acetylene cost:RMB 2100/mtCalcium carbide priceRMB 5619/mtAcetylene raw materialsRMB 250/mtConversion costRMB 6319/mtTotal cost of acetyleneVCM cost:RMB 2857/mtAcetylene costRMB 1289/mtHydrogen chloride costRMB 250/mtConversion costRMB 4846/mtTotal cost of VCMPVC cost:RMB 4945/mtVCM costRMB 300/mtConversion costRMB 5695/mtTotal cost of PVCCost of PVC from carbide:Full cash cost ex-worksRMB 5695/mt (US$688/mt)Harriman Chemsult estimates
30In summaryNorth America – the major event is the potential commissioning of the Shintech unit and dislocation to the market of the introduction of new major capacity.Europe – the ongoing absence of investment owing to poor margins and so a continuation of the relative balance across the region. There are longer term prospects for investment in Russia.Middle East – the fundamental problem of cheap feedstock versus limited domestic demand, with a continuation of the model of exporting ECUs (caustic soda & EDC/VCM).Africa – the absence of any investment.Latin America – a growing caustic soda deficit stimulating demand for new vinyl capacity.Asia – the potential inability of China to absorb increases in supply. The prospects for a dislocation to existing exporters to China and the possibility of Chinese exports of PVC.
31New PVC capacity, 2005-10 China 73% Asia Others 81% 19% India 5% Other Asia3%Asia81%Others19%Middle East 6%Europe 7%Others 6%
32PVC capacity by region 35 30 25 2001 2005 20 2010 15 10 5 Asia Europe AsiaEuropeNorth AmericaMiddle EastOthers
33In summary…When Chinasneezes……the Worldcatches a cold