Chemical Industry Bottom Breakthrough: Chlorine-alkali Battle to Increase Capacity
The entire chlor-alkali industry is finding its way out of the dilemma of declining performance.
Analyst Yang Wei of Guotai Junan Securities pointed out in his report that the chlor-alkali industry is already at the bottom of the chemical sub-sector, and the industry-wide gross margin level is below 10%.
At the 9th China Chlor-Alkali Forum on September 4, Sun Zesheng, general manager of Shenyang Chemical Industry Co., Ltd. bluntly stated that “the pressure to hinder the recovery of the (chlorine-alkali) industry is mainly due to export obstruction, weak domestic demand and overcapacity, especially overcapacity.â€
"De-capacity" has become the bitter medicine that the chlor-alkali industry has to drink. However, how to really "entrance" is a test for giants such as Sino-Thai Chemicals that are still aggressively expanding production.
“Can the chlor-alkali industry stop building new projects within three years?†Li Jun, general manager of China Chlor-Alkali Industry Association and general manager of Shanghai Chlor-Alkali Chemical Co., Ltd. asked the industry representatives present.
The overall predicament "In the words of an image, we are born out of season," said Yin Chengguo, general manager of Inner Mongolia Yili Chemical Industry Co., Ltd. In 2008, Yili Chemical had an annual output of 400,000 tons of PVC and 400,000 tons of caustic soda project. However, due to the outbreak of the financial crisis, it was unable to achieve prior operational expectations.
This is the epitome of the entire chlor-alkali industry.
According to Li Jun, affected by the global financial crisis and the excessive development of China's chlor-alkali industry in recent years, the chlor-alkali industry in China has entered a downward path since the fourth quarter of 2008. The chlor-alkali industry is facing the dual pressure of reducing downstream demand and domestic overcapacity, and the entire industry has entered a difficult adjustment period.
One obvious evidence is that in the first half of 2009, the performance of the nine major chlor-alkali listed companies fell on a year-on-year basis, with four of them falling by more than 100%.
Whether in the domestic or overseas markets, China's chlor-alkali industry seems to find it difficult to find a matching downstream.
In the alumina industry, one of the major downstream sources of chlor-alkali, its consumption of caustic soda has exceeded 11% of the total consumption of caustic soda. However, at present, the operating rate of alumina is still less than 55%. The reduction in aluminum production directly affects the demand for caustic soda. The same phenomenon also occurs in other downstream industries such as pulp and synthetic detergents.
These pressures are directly at the import and export data of chlor-alkali products in China.
Statistics show that China exported 31,842 tons of caustic soda in June, a 54% drop from May and a 71% drop from the same period of 2008, setting the lowest level of China's caustic soda exports since the last 30 months.
The PVC (polyvinyl chloride) exports were also blocked. From January to June of 2009, China imported 1.1017 million tons of PVC, which was a year-on-year increase of 160%, while exports were only 30,000 tons, a decrease of 92% year-on-year.
At the same time, market prices are still undervalued. "At present, the market price of PVC is jagged and low, and the prices of caustic soda inside and outside the market have fallen at the same time." Li Jun said.
However, raw material prices have shown a rising state, which further squeezed the company's profit margins. According to Li Jun, "Compared with the beginning of the year, ethylene rose by 55% to 1,000 US dollars / ton, EDC rose 190% to 480 US dollars / ton, and VCM rose 32% to 710 US dollars / ton."
For the chlor-alkali industry in the fourth quarter, the industry is not optimistic. According to Sun Zesheng’s prediction, after October, the market will become more severe and will enter the “Little Winter†in the first quarter of next year.
De-capacity is contrary to the decline in demand. Even in the context of the financial crisis, various types of chlor-alkali projects are still being carried out throughout the country.
In April 2009, Anhui Huasu started construction of a l00-million-ton PVC project, which is expected to start production in May 2011; Xinjiang Zhongtai's 450,000 tons of PVC and 320,000 tons of caustic soda are also scheduled to be put into operation by the end of March 2010; other planned projects Also included are 300,000 tons of PVC, 300,000 tons of caustic soda, and 400,000 tons of PVC and 400,000 tons of caustic soda in Inner Mongolia.
According to statistics, in 2008 China's caustic soda production capacity reached 24.72 million tons, and production was 18.52 million tons. According to the original plan, domestic caustic soda production capacity will further increase in 2009 and an additional 4.945 million tons is expected.
Li Jun said that in 2009 there were 17 PVC idle companies with a capacity of 935,000 tons, but there were also nine new expansion companies with a capacity of 1.67 million tons.
The continuous increase of new production capacity brings about not the profits envisaged when the project was initiated, but the continuous decline in the operating rate of the entire industry. Li Jun said that in 2008, the average operating rate of PVC was 55%. In 2009, the operating rate is expected to drop to 50%.
Sun Zesheng predicts, “In the long run, the chlor-alkali industry needs to get out of the predicament and it takes two to three years to digest excess capacity.â€
In Li Jun's view, "de-capacity" has been related to the survival of the chlor-alkali industry. "The impact of the financial crisis on the real economy is divided into two phases. The first phase is destocking. The key point is the dispute between the profits and the losses. The second phase is the de-capacity. The essence is the struggle between life and death."
“Currently, the chlor-alkali industry is faced with a severe situation of 'de-capacity'. In recent years, large-scale investment has enabled rapid expansion of the production capacity of China's chlor-alkali industry, and 'de-capacity' will be a long process. Only after the baptism of market competition The elimination of outdated production capacity and the continuous adjustment and integration of the industry will enable China's chlor-alkali industry to enter the track of sound development, said Li Jun.
However, the “bitter drugs†of the Chinese chlor-alkali industry in China have to satisfy certain conditions before they can “importâ€.
A representative of a large-scale chlor-alkali enterprise told the reporter that “depending on the industry itself, it is difficult to eliminate production capacity, or need the government to carry out macro-control.†Yin Chengguo also believes that “the elimination of backward production capacity will be a long process.â€
For the chlor-alkali industry, the current good news is that the growth rate of new capacity is slowing down.
Yang Sen, director of China Chlor-Alkali Network Information Department, pointed out that there are many variables in the plan to expand production by 4.95 million tons in 2009. Due to the economic crisis and other reasons, the delay in commissioning the project is more common. Among the 4.95 million tons of new caustic soda production planned for 2009, 800,000 tons have already been put into production in the first half of the year, a total of 810,000 tons of projects have been postponed, and 200,000 tons of the project have been cancelled.
While the elimination of backward production capacity was carried out during the integration, the large-scale integration of the chlor-alkali industry was also put on the agenda.
Li Jun believes that one of the main outlets for China's chlor-alkali industry is to promote industry restructuring and integration, that is, eliminate backward production capacity and control new production capacity to increase industry concentration.
At present, two central SOEs have taken the lead in mergers and acquisitions.
According to Li Bo, the Minister of Chemical Industry of Salt and Salt Industry, in recent years, Zhongyan has successively acquired Jilantai, Hunan Zhuhua, Anhui Hongsifang (formerly Anhui Chlor-alkali) and Changzhou Chemical Plants in Inner Mongolia, and increased the scale of production through an integrated approach. .
The Sinochem Group, which is part of the China Chemical Industry Group, is also ambitious and regards mergers and acquisitions as one of the main ways to become a big chlor-alkali business segment. In recent years, Yuhua has acquired 6 companies including Siping Haohua and Yuhua Aerospace through its mergers and acquisitions, forming an annual production capacity of 1.4 million tons of PVC and 1.3 million tons of caustic soda. Its total capacity ranks first in the industry.
Liu Zhiqiang, director of the Planning and Development Department of Haohua, said that the main objective of the chlor-alkali business segment has been to further increase production capacity in 3-4 years and increase sales revenue to 40 billion yuan.
According to the plan, Haohua will invest some funds, and in 2-3 production bases with an annual production capacity of 1 million tons, sales revenue of 10 billion, and a recycling industrial chain within 3 years, and build a raw material base based on the resource strategy.
Analyst Yang Wei of Guotai Junan Securities pointed out in his report that the chlor-alkali industry is already at the bottom of the chemical sub-sector, and the industry-wide gross margin level is below 10%.
At the 9th China Chlor-Alkali Forum on September 4, Sun Zesheng, general manager of Shenyang Chemical Industry Co., Ltd. bluntly stated that “the pressure to hinder the recovery of the (chlorine-alkali) industry is mainly due to export obstruction, weak domestic demand and overcapacity, especially overcapacity.â€
"De-capacity" has become the bitter medicine that the chlor-alkali industry has to drink. However, how to really "entrance" is a test for giants such as Sino-Thai Chemicals that are still aggressively expanding production.
“Can the chlor-alkali industry stop building new projects within three years?†Li Jun, general manager of China Chlor-Alkali Industry Association and general manager of Shanghai Chlor-Alkali Chemical Co., Ltd. asked the industry representatives present.
The overall predicament "In the words of an image, we are born out of season," said Yin Chengguo, general manager of Inner Mongolia Yili Chemical Industry Co., Ltd. In 2008, Yili Chemical had an annual output of 400,000 tons of PVC and 400,000 tons of caustic soda project. However, due to the outbreak of the financial crisis, it was unable to achieve prior operational expectations.
This is the epitome of the entire chlor-alkali industry.
According to Li Jun, affected by the global financial crisis and the excessive development of China's chlor-alkali industry in recent years, the chlor-alkali industry in China has entered a downward path since the fourth quarter of 2008. The chlor-alkali industry is facing the dual pressure of reducing downstream demand and domestic overcapacity, and the entire industry has entered a difficult adjustment period.
One obvious evidence is that in the first half of 2009, the performance of the nine major chlor-alkali listed companies fell on a year-on-year basis, with four of them falling by more than 100%.
Whether in the domestic or overseas markets, China's chlor-alkali industry seems to find it difficult to find a matching downstream.
In the alumina industry, one of the major downstream sources of chlor-alkali, its consumption of caustic soda has exceeded 11% of the total consumption of caustic soda. However, at present, the operating rate of alumina is still less than 55%. The reduction in aluminum production directly affects the demand for caustic soda. The same phenomenon also occurs in other downstream industries such as pulp and synthetic detergents.
These pressures are directly at the import and export data of chlor-alkali products in China.
Statistics show that China exported 31,842 tons of caustic soda in June, a 54% drop from May and a 71% drop from the same period of 2008, setting the lowest level of China's caustic soda exports since the last 30 months.
The PVC (polyvinyl chloride) exports were also blocked. From January to June of 2009, China imported 1.1017 million tons of PVC, which was a year-on-year increase of 160%, while exports were only 30,000 tons, a decrease of 92% year-on-year.
At the same time, market prices are still undervalued. "At present, the market price of PVC is jagged and low, and the prices of caustic soda inside and outside the market have fallen at the same time." Li Jun said.
However, raw material prices have shown a rising state, which further squeezed the company's profit margins. According to Li Jun, "Compared with the beginning of the year, ethylene rose by 55% to 1,000 US dollars / ton, EDC rose 190% to 480 US dollars / ton, and VCM rose 32% to 710 US dollars / ton."
For the chlor-alkali industry in the fourth quarter, the industry is not optimistic. According to Sun Zesheng’s prediction, after October, the market will become more severe and will enter the “Little Winter†in the first quarter of next year.
De-capacity is contrary to the decline in demand. Even in the context of the financial crisis, various types of chlor-alkali projects are still being carried out throughout the country.
In April 2009, Anhui Huasu started construction of a l00-million-ton PVC project, which is expected to start production in May 2011; Xinjiang Zhongtai's 450,000 tons of PVC and 320,000 tons of caustic soda are also scheduled to be put into operation by the end of March 2010; other planned projects Also included are 300,000 tons of PVC, 300,000 tons of caustic soda, and 400,000 tons of PVC and 400,000 tons of caustic soda in Inner Mongolia.
According to statistics, in 2008 China's caustic soda production capacity reached 24.72 million tons, and production was 18.52 million tons. According to the original plan, domestic caustic soda production capacity will further increase in 2009 and an additional 4.945 million tons is expected.
Li Jun said that in 2009 there were 17 PVC idle companies with a capacity of 935,000 tons, but there were also nine new expansion companies with a capacity of 1.67 million tons.
The continuous increase of new production capacity brings about not the profits envisaged when the project was initiated, but the continuous decline in the operating rate of the entire industry. Li Jun said that in 2008, the average operating rate of PVC was 55%. In 2009, the operating rate is expected to drop to 50%.
Sun Zesheng predicts, “In the long run, the chlor-alkali industry needs to get out of the predicament and it takes two to three years to digest excess capacity.â€
In Li Jun's view, "de-capacity" has been related to the survival of the chlor-alkali industry. "The impact of the financial crisis on the real economy is divided into two phases. The first phase is destocking. The key point is the dispute between the profits and the losses. The second phase is the de-capacity. The essence is the struggle between life and death."
“Currently, the chlor-alkali industry is faced with a severe situation of 'de-capacity'. In recent years, large-scale investment has enabled rapid expansion of the production capacity of China's chlor-alkali industry, and 'de-capacity' will be a long process. Only after the baptism of market competition The elimination of outdated production capacity and the continuous adjustment and integration of the industry will enable China's chlor-alkali industry to enter the track of sound development, said Li Jun.
However, the “bitter drugs†of the Chinese chlor-alkali industry in China have to satisfy certain conditions before they can “importâ€.
A representative of a large-scale chlor-alkali enterprise told the reporter that “depending on the industry itself, it is difficult to eliminate production capacity, or need the government to carry out macro-control.†Yin Chengguo also believes that “the elimination of backward production capacity will be a long process.â€
For the chlor-alkali industry, the current good news is that the growth rate of new capacity is slowing down.
Yang Sen, director of China Chlor-Alkali Network Information Department, pointed out that there are many variables in the plan to expand production by 4.95 million tons in 2009. Due to the economic crisis and other reasons, the delay in commissioning the project is more common. Among the 4.95 million tons of new caustic soda production planned for 2009, 800,000 tons have already been put into production in the first half of the year, a total of 810,000 tons of projects have been postponed, and 200,000 tons of the project have been cancelled.
While the elimination of backward production capacity was carried out during the integration, the large-scale integration of the chlor-alkali industry was also put on the agenda.
Li Jun believes that one of the main outlets for China's chlor-alkali industry is to promote industry restructuring and integration, that is, eliminate backward production capacity and control new production capacity to increase industry concentration.
At present, two central SOEs have taken the lead in mergers and acquisitions.
According to Li Bo, the Minister of Chemical Industry of Salt and Salt Industry, in recent years, Zhongyan has successively acquired Jilantai, Hunan Zhuhua, Anhui Hongsifang (formerly Anhui Chlor-alkali) and Changzhou Chemical Plants in Inner Mongolia, and increased the scale of production through an integrated approach. .
The Sinochem Group, which is part of the China Chemical Industry Group, is also ambitious and regards mergers and acquisitions as one of the main ways to become a big chlor-alkali business segment. In recent years, Yuhua has acquired 6 companies including Siping Haohua and Yuhua Aerospace through its mergers and acquisitions, forming an annual production capacity of 1.4 million tons of PVC and 1.3 million tons of caustic soda. Its total capacity ranks first in the industry.
Liu Zhiqiang, director of the Planning and Development Department of Haohua, said that the main objective of the chlor-alkali business segment has been to further increase production capacity in 3-4 years and increase sales revenue to 40 billion yuan.
According to the plan, Haohua will invest some funds, and in 2-3 production bases with an annual production capacity of 1 million tons, sales revenue of 10 billion, and a recycling industrial chain within 3 years, and build a raw material base based on the resource strategy.
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