Caustic Soda Subsidizing Chlorine Dilemma Persists
Introduction: In the past two years, the profits of marginal chlor-alkali integrated plants have declined, but the pattern of “using caustic soda to offset chlorine” remains. Profits from caustic soda still cover losses from PVC, so in the second half of the year, PVC enterprises using externally purchased calcium carbide are unlikely to make significant operational adjustments and will mostly maintain operations.
When calculating PVC product profits, chlorine costs are incorporated.
PVC producers who purchase VCM have maintained relatively decent profitability, experiencing losses only sporadically over the past two years. However, lacking integrated caustic soda units, these producers possess shorter industry chains and consequently lower risk resilience. As of June 5, VCM-based producers recorded losses of RMB -164/mt, down RMB 554/mt YoY.
PVC producers who are matched with calcium carbide units in Inner Mongolia faced limited losses. Declining coal prices dragged down the semi-coke prices, so the cost of calcium carbide moved down. Most PVC producers in Inner Mongolia are matched with calcium carbide plants and have preferential electricity pricing, so these enterprises exhibit stronger risk resistance capability. Current profits stand at RMB -902/mt, down RMB 815/mt YoY.
PVC producers who outsourced calcium carbide and imported ethylene in North China faced high profit losses. As of June 5, the average profit at PVC producers who outsourced calcium carbide in Shandong was RMB -1,018/mt, down RMB 857/mt YoY, while the average profit at PVC producers who imported ethylene was RMB -916/mt, down RMB 817/mt YoY.
PVC producers that purchase VCM externally do not have supporting caustic soda units. In contrast, integrated plants in Inner Mongolia, with supporting calcium carbide factories and advantages in electricity prices and flake caustic soda costs, have stronger risk resistance.
As shown in the chart, since 2023, the profit level of Shandong’s caustic soda-PVC integrated plants has significantly declined. The average profit in 2023 was RMB 184/mt, and in 2024 it was RMB 379/mt (the main reason for the profit rebound was the obvious price rally of caustic soda in Q4 due to supply-demand mismatch).
From January to May, the integrated profit at caustic soda-PVC integrated plants in Shandong averaged RMB 104/mt. When the supply-demand mismatch in the caustic soda market is not prominent, the downside space for prices in the second half of the year may remain limited, and the pattern of “using profits from producing caustic soda to offset losses from producing chlorine and PVC” will likely continue. However, the fundamental pressure on PVC will likely increase in the second half, with the only positive support still coming from the export side. There are many uncertainties in the macroeconomic environment. If tariff issues are further alleviated, market sentiment may improve, but under the impact of industry overcapacity, the market is highly likely to shift to trading weak fundamental logic, and prices are still expected to decline. Overall, the average profit of Shandong’s caustic soda-PVC integrated plants in 2025 is expected to decline year-on-year, possibly remaining close to the 2023 level. In the chlor-alkali PVC industry, as long as the integrated units bring minimal profits, enterprises will limit operational adjustments and mostly maintain operations.
Overall, the chlor-alkali PVC industry has entered a low-profit cycle, relying on caustic soda profits for short-term operations, but the structural overcapacity issue remains unresolved. In the second half of the year, the operating rate of PVC enterprises may remain stable, but the overall profit recovery of the industry still awaits an improvement in the supply-demand pattern or new drivers from the cost side. Policies and exports will become key variables.
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