Source: Baidu

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.

Gloomy future of octanol

-Slow growth on octanol capacity

Since 2013, the growth China capacity of octanol has been slowing down. In 2015, with the new 80,000 t/a octanol capacity from Jiangsu Huachang Chemical Co. Ltd., the total octanol capacity reached to 2.106 million t/a in China.

A part of the production lines got “put aside” in 2014 while in 2015, those lines were almost fully loaded. With the restart of octanol production lines from Sinopec Sichuan Petrochemical Company and China Dongming Oriental Group, the total octanol production reached 1.53 million tonnes in 2015, a record high in China.

The operation rate of octanol production lines were only 60% in China in 2013. Limited by the high prices of raw materials and low prices of products, the productions in many enterprises were in deficit. Some production lines were even suspended. In 2015, the operation rate reached to over 73% when the production lines could be fully operated.

In the development of octanol industry, part of the octanol business of Sinopec Group had exited the octanol industry in 2011; and the octanol capacity stopped increasing in four years. As for China National Petroleum Corporation (CNPC), its butyl octanol business is developing and thus the octanol capacity is increasing in the past few years.

Tianjin Bohai Chemical Industry Group Co., Ltd. has become the biggest octanol producer in China, followed by Sinopec Qilu Petrochemical Company, Luxi Chemical Group Co., Ltd., and Shandong Jian Lan Chemical Co., Ltd.

Due to too much new octanol production equipment in the past few years, the profits dropped a lot. Some plan-to-construct projects have even been cancelled.

It is predicted that the growth of octanol capacity would slow down and it would reach 2.3 million – 2.5 million t/a in 2020 in China. Due to the overcapacity, few new capacities would be in the market and the operation rate of octanol would remain around 70%.

-Source of raw materials change structure of competition

Around the year 2010, the self-sufficiency rate of octanol enterprises in China was about 50%-60%. With high profit, the enterprises were very active in investing. The development of raw materials has broken the monopoly by the two giants in China - Sinopec Group and CNPC, which gave more opportunities to the investors.

Sinopec Group and CNPC have both adjusted their butyl octanol business. Sinopec Group decided to exit the octanol industry and to expand on n-butyl alcohol, while CNPC planned to have a more balance development in its butyl octanol business.

The new capacities from the new players are constructed very fast. With the development of its raw materials, the new butyl octanol projects are no longer limited with only the pattern of buying propylene to construct butyl octanol equipment.

In the construction of butyl octanol equipment in the past two years, integrative development in the upstream has been popular with new players; at the same times, downstream butyl octanol equipment projects for PDH projects and MTP projects also appear, which would change the butyl octanol industry from the sources of raw materials. Thus, led by the fluctuation of crude oil price in the future, the changes of propylene would complicate the completion structure of strubutanol and octanol.

In H2 2014, the cost of naphtha pyrolysis olefin enjoyed great advantages in three raw materials. By Feb. 2016, the cost of naphtha olefin was much lower than MTO which used imported methanol and PDH priced by CP.

Due to the diversity of propylene, raw material of butyl octanol, PDH and MTO projects would keep impacting on the butyl octanol market. In term of competiveness, PDH project would enjoy great advantages in short time while MTO project would get weaken.

The capacity of butyl octanol equipment in single unit was about 250,000t/a. Considering the operating capital for installing propylene and butyl octanol, it is estimated that the capital for the butyl octanol equipment would cost RMB600-700 million with the interest of about RMB35-40 million per year.

-Increasing domestic capacity but increasing exporting volumes

The apparent consumption of octanol was 1.737 million tonnes in 2015, up 14.4% YoY, among it, the domestic output was 1.533 million tonnes, up 11.2% YoY. The self-sufficiency rate of octanol in China has gone up to 81% in 2013 from 70% in 2012, increased to 90.8% in 2014 and stayed at 88.3% in 2015.

However, with the increasing domestic capacity of octanol in China, the exporting volume was also increasing and the import volume was decreasing. The total import volume was 219,000 tonnes in 2015, up 13% YoY, while the net import volume was 204,000 tonnes.

The main reason why the net import volume was increasing instead of decreasing is that the overseas suppliers were not willing to give up the China market, and offered more discount. Moreover, most of the octanol equipment was in maintenance in 2015 and the downstream industries would fill up the octanol for overseas.

It is predicted that the output of octanol in China would reach about 1.8 million tonnes in 2016, up 8% YoY; its net import volume would be 100,000 tonnes in 2016, down 44% while apparent consumption would be 1.85 million tonnes, up 4% YoY in 2016.

-Sluggish downstream market

Octanol is mainly used to produce dioctyl phthalate (DOP) in China. The apparent consumption of octanol was 1.737 million tonnes in 2015. Based on the current capacity and total apparent demand, there is no argue that octanol industry is in overcapacity.

Limited by the consumption of DOP, the consumption of octanol would increase in a short time; however, in the future, the growth rate of octanol consumption would decrease rapidly even if the consumption of DOP doesn’t decrease.

The speech of newly constructed capacity is much faster than the growth of octanol market. Thus, the octanol market is looking gloomy in the future.

In 2015, the growth of import volume for plastic products was only 2.3%. The demand for plasticizer and solvent decreased obviously.

-Down on price of whole industy

The prices of the products for both octanol upstream and downstream all fell over the lowest prices in 2008. The decreasing prices are mainly attributed to the capacity expansion.

The gloomy global economy led to weak demand in the end-product market. Moreover, with the increasing awareness of environment, developed countries in Europe and the US have limited the use of DOP on many products, which is another important reason for the falling prices.

-Fall of profit of octanol products

Though the capacity of propylene kept releasing in 2015, the demand is still in shortage, which has put more pressure of cost on octanol producers.

With the release of octanol capacity and the sluggish downstream market, the octanol producers were in deficit.

The profit margin was higher compared to the past two years, which was attributed to discount offered by the octanol and phthalic anhydride. The average profit of DOP was RMB100-200 per annually while the producers of octanol and phthalic anhydride were in huge deficit. Currently, the price of propylene stayed high, at about RMB5,850-5,950/t in Shandong China.

Due to the high price of propylene and the low price of octanol, China Dongming Oriental Group postponed its operating time. It is predicted the price of octanol won’t fall any longer.

The octanol producers still have to deal with the high price pressure of propylene. There is not much storage of octanol in the producers, and its price would rise by RMB200-300/t.

It is predicted that the net profit margin of octanol would be narrow.

CCM will post the second part of Analysis on raw materials in plasticizer industry - phthalic anhydride next week. Please keep following us.

*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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