Analysis on raw materials in plasticizer industry - phthalic anhydride

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Publish time: 23rd August, 2016      Source: CCM
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  As for phthalic anhydride, its capacity in China reached 2.565 million t/a in 2015, ranking top one in the world. Currently, the production lines of phthalic anhydride are not fully loaded in China. The competition within phthalic anhydride industry is predicted to be more intense because the industry has already been in overcapacity and the manufacturers are stilling expanding their capacity.

  

  

  

  Source: Baidu

  

  -Increase in capacity

   

  By the end of 2015, the total capacity of phthalic anhydride was 2.565 million t/a in China, accounting for over 40% of the total capacity and ranking top 1 in the globe. Currently, there are over 40 phthalic anhydride producers in China. Among the 40 producers, Shandong Hongxin Chemical Co., Ltd. is the biggest one, with the capacity of 180,000 t/a, accounting for 7% of the total capacity in China.

   

  The capacity of phthalic anhydride is predicted to be expanded by 720,000 t/a in China in 2016-2017. The actual expansion would depend on the market and the producers themselves. Though some planned production equipment has been constructed in 2015, the producers still postponed its capacity expansion plan to 2016 due to the consideration of market and capital. If the market still looks sluggish, the production equipment would be possible to be put aside.

   

  -Down in both import volume and total consumption

   

  Since 2009, the import volume of phthalic anhydride has kept falling. According to Free Trade Agreement between the government of the Republic of Korea and the government of People's Republic of China, phthalate products traded will enjoy zero tariff and the tariffs for phthalic anhydride will remain at 6.5%. Thus, it is possible that the import volume from Korea would increase in the future.

   

  Since 2012, the consumption of phthalic anhydride has also decreased. In 2015, the self-sufficiency rate reached 95%.

   

  The supply of phthalic anhydride is getting saturated in China. With overcapacity and weak end-market demand, the producers are facing sales pressure. In the past few years, with too much capacity expansion of phthalic anhydride and the growth of DOTP (substitute for phthalic anhydride), the overcapacity became even worse in the industry.

   

  As for the phthalic anhydride market, plasticizer and unsaturated polyester resin are its main downstream market. The operation rate is very low and the consumption of phthalic anhydride is much weaker compared to last year.

   

  -Contradiction between supply and demand of raw material phthalate

   

  The capacity of phthalate is far away to reach the need of demand, so the import volume was quite large. In H2 2015, the growth of phthalate consumption slowed down due to the pressure from the environment protection policies from the Chinese government on phthalic anhydride.

   

  By the end of 2015, the total capacity of phthalate reached 139 million t/a in China. However, limited by different factors, the actual operating capacity was only 960,000 t/a. The speech of capacity expansion was quite slow compared to the increasing demand from its downstream product, phthalic anhydride.

   

  In 2016, the capacity of phthalate expanded by 200,000 t/a. However, the production lines of phthalate were not fully loaded in the manufacturers and Sinopec Yangzi Petrochemical Company Ltd. cut down half of its production, which impacted hugely on the weak supply of phthalate.

   

  The capacity structure of phthalate equipment was quite stable in China, mainly locating in East China (41%), South China (29%) and North-east China (19%). Based on the location of phthalate manufacturers, most of the phthalate capacity is also in East China, South China and North-east China.

   

  At the beginning of 2015, the phthalate market was sluggish in China. The high profit of paraxylene had infected the supply of phthalate and almost 40% of phthalate was imported. In the past few years, the phthalate dealers became less so did the shipment, and the dealers didn't have much stock. 

   

  The capacity of phthalate would keep expanding in 2015-2020, but the growth and self-sufficiency rate would be quite slow. With the increasing on the output, the gap between the supply and demand would be narrowed down.

   

  -          Market of phthalic anhydride produced by phthalate has narrow profit margin

   

  In 2015, though the price of phthalate decreased a little bit, the price was still high relatively. Thus, the profit margin of phthalic anhydride produced by phthalate was quite narrow and most of these products were in deficit for the producers.

   

  The increasing market of phthalic anhydride produced by naphthalene was mainly attributed to its high profits. In 2015, the price of technical naphthalene kept falling, down to around RMB2,000/t. And the profit of phthalic anhydride produced by naphthalene stayed very high, with the profit around RMB1,000/t. However, in 2016, the market was sluggish due to the weak demand for downstream market.

   

  In 2016, much new production equipment of phthalic anhydride produced by phthalate and more projects of phthalic anhydride produced by naphthalene are both impacting the phthalate market. It is predicted that the price of phthalate market is hard to rise.

   

  -          Hard for market of phthalic anhydride produced by naphthalene to develop

   

  Phthalic anhydride has experienced the changes and upgrade from phthalate to naphthalene as the raw material. In the past ten years, China has become one of the biggest countries to produce phthalic anhydride/plasticizer by the development of the industrial chain "phthalate- phthalic anhydride- plasticizer-PVC'. However, the development of phthalic anhydride and its upstream and downstream was imbalanced, causing the intense competition and falling profits.

   

  Since 2011, the price of technical naphthalene kept falling and the whole industry chose to produce phthalic anhydride using naphthalene instead of phthalate again. Currently, the capacity of phthalic anhydride produced by phthalate was 1.765 million t/a and that of phthalic anhydride produced by naphthalene was 800,000 t/a.

   

  Though phthalic anhydride produced by phthalate still enjoys advantages, it is not much different from that by naphthalene. Till now, there is no emerging downstream market for technical naphthalene market. If technical naphthalene market doesn't catch up with the upgrading from the traditional coal chemical industry, the demand of the end-product would fall definitely.

   

  -          Market trend of phthalic anhydride is quite risky

   

  In 2016, the phthalic anhydride market was sluggish in China and the phthalic anhydride products were in deficit for a long time. Entering 2016, the price of phthalic anhydride produced by phthalate kept rising and the products became profitable finally. The price of phthalic anhydride produced by phthalate rose to RMB6,500-6,600/t from RMB4,800-4,900/t, up 35.4%.

   

  The downstream market of plasticizer is still weak and there are not many orders. With the less imported shipment of phthalate and the low operation rate of the production lines, the price would remain stable.

   

  In mid-Feb. and mid-March 2016, the DOP market kept rising. The DOP price in East China increased to RMB7,000/t from RMB5,900/t, up 18.6%. But both the price growth of DOP raw material – octanol and phthalic anhydride was faster than that of DOP, and the DOP market is still under great pressure.

  

  Related Reading: Analysis on raw materials in plasticizer industry - octanol

  

  *This article is edited and translated by CCM. The original one comes from Economic Analysis of China Petroleum and Chemical Industry.

   

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