China's fragmented PVC industry, while the largest in the world in production capacity, needs to consolidate and restructure to boost its international competitiveness, according to the head of one of the country's plastics trade associations.
The average Chinese PVC maker's annual capacity of 353 million pounds is three to five times smaller than counterparts in Japan and the U.S., which hurts the Chinese industry's ability to innovate and compete at a global level, said Li Jun, chairman of the Beijing-based China Chlor-Alkali Industry Association.
In a May 26 speech at an industry conference in Hangzhou, Li said that while China's domestic PVC industry has grown rapidly since 2000, structural issues will lead to a series of serious problems unless addressed.
These problems already existed and the financial crisis was only an accelerator, said Li, who is also chairman of Shanghai Chlor-Alkali Chemical Co., the country's sixth-largest PVC maker.
He spoke at the 2010 China Plastics Industry Conference, held May 26-27. The event was sponsored by the Dalian Commodity Exchange and the China Petroleum and Chemical Industry Federation.
Industrial restructuring would also help China's PVC industry develop in a more sustainable way, which could include more research into an alternative to mercury-based accelerators, and increasing overall research and development spending.
Too many Chinese firms, including some of the larger ones, shortchange R&D, Li said: It is totally an inappropriate way to run their companies.
But the chief challenge the industry faces is economic, he said.
Even amid a Chinese economy projected to grow 9-10 percent this year, rapid PVC expansion in recent years has left the industry's capacity utilization at the dangerously low rate of 50 percent, he said.
Some analysts at the conference interpreted Li's speech as a call to slow the nearly constant capacity expansions planned in China, so that existing companies can improve profitability.
Li said industry profitability plunged in 2009 to levels not seen since 2003, when the country implemented anti-dumping measures to protect local producers, and the local industry took off. China surpassed the U.S. in PVC production in 2005 to become the world's largest.
In spite of the economic troubles, China's PVC industry plans to add about 14.7 billion pounds of capacity by 2012, about a 35 percent increase from 2009, he said.
Economic growth in China is expected to continue to push up PVC demand, particularly in the housing and automobile sectors, and that expectation of future growth is certainly fueling some of the capacity expansion plans.
But even if not all of the additional planned capacity comes on stream, Li said he believes there is still too much unused capacity and the industry is too fragmented.
China has about 105 PVC producers, while the U.S. has eight, with an average capacity of 1.65 billion pounds, and Japan has five, with an average capacity of 1 billion pounds.
Changing the means of growth, strengthening technological innovation and shouldering social responsibility are the necessary choice[s] for the Chinese PVC industry to achieve sustainable development and for China to become a top PVC power in the world, Li said.
The PVC industry globally and in China has taken a big hit in the global slowdown, with PVC demand growth in China dropping to 7 percent from 2007 to 2009, well below earlier double-digit growth projections, said Janet Wright, chlor-alkali and vinyls business manager for London-based consultancy Tecnon Orbichem Ltd.
That has meant a loss in overall demand growth in China of about 3.3 billion pounds from earlier projections, she said in an address at the conference.
Many Chinese PVC projects were delayed or canceled in 2009, leaving capacity levels about 20 percent below projections, Wright said.
Chinese PVC producers have also been hurt because their acetylene-based method of making PVC is less competitive than the ethylene-based system more common in the rest of the world, Wright said.
That difference has actually meant more PVC imports coming into China, and has led to a crash of Chinese PVC exports that are no longer competitive in the weakened global economy, Wright said.
Li said major PVC-producing nations, including Japan, had been seeing sizable drops in their domestic demand even before the economic crisis, and that has led to more pressure on companies in those countries to export, with significant amounts of that bound for China.
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