Furfural and Furfuryl alcohol Capacity Expands Unduly

By Tao Hailong   

China is the biggest furfural and furfuryl alcohol producer and
exporter in the world. There were more than 300 furfural
producers in China in 2005. The total capacity of furfural was
close to 300 thousand t/a and the output was around 220 thousand
tons, accounting for 80% of the world total. The total capacity
of furfuryl alcohol was 240 thousand t/a and the output was
around 140 thousand tons.

Violent market fluctuations

China's production capacity for furfural and furfuryl alcohol
has undergone unduly rapid expansion in recent years. The
overall slackness of downstream consumption sectors such as
furan resins has led to a serious oversupply in the furfural and
furfuryl alcohol market. Due to violent market fluctuations many
units produce only intermittently, aggravating the instability
of the market. Take furfural for instance. The price of furfural
has had a drastic fluctuation of RMB3 000-9 000 per ton since
2001. Ups and downs of prices are totally beyond normal
tolerances and have caused great difficulty for producers in
managing their operations.
   Furfural and furfuryl alcohol production in China is mainly
distributed in Northeast China, Inner Mongolia, Shandong
province, Henan province, Hebei province and Shanxi province.

1. Northeast China and Inner Mongolia

Northeast China and Inner Mongolia together are the main regions
producing furfural in China. The total capacity in the region
reached 150 thousand t/a in 2005. Major producers are
distributed in Shenyang, Tieling and Fuxin of Liaoning province,
Siping, Changchun and Songyuan of Jilin province, Suihua of
Heilongjiang province and Tongliao and Chifeng of Inner Mongolia.
The output of furfural in the region was 100 thousand tons in
2005. The number of furfural producers increased by 52 during
2004 - 2005. The capacity of many new units has reached 2
thousand-3 thousand t/a and the overall processing technology
is quite high.
   The region's biggest advantage for furfural production is the
easy availability and low price of corncobs as raw material.
China's new furfural capacity expansion in recent years is
mostly concentrated in Northeast China. There are therefore
great market risks. Besides, furfural units in some areas of
Northeast China are located closely together and the competition
in acquiring raw material has led to a cost increase. According
to statistics, since 2003 the rising price of corncobs has caused
a raw material cost increase of RMB600-800 per ton in the
furfural production of Northeast China. When the costs of energy
consumption, long-distance transportation, labor and
environmental protection are added, the production cost has
increased by RMB825-1 065 per ton.
   Due to climate and technology factors, the furfuryl alcohol
production of Northeast China and Inner Mongolia has seen only
slow development and annual output has remained less than 10
thousand tons in recent years. Huludao Jinming Chemical Co., Ltd.
plans to launch a 30 thousand t/a furfuryl alcohol project.
Construction of the first phase, with a capacity of 15 thousand
t/a, already started on October 28th 2006.

2. Shandong province

The capacity of furfuryl alcohol in Shandong province was 130
thousand t/a in 2005 and the output was 110 thousand tons,
accounting for around 80% of the national total. The capacity
of furfural in Shandong province was only 40 thousand t/a and
the output was around 30 thousand tons. Raw material furfural
for furfuryl alcohol production in Shandong province is
therefore mostly purchased from outside sources. Northeast
China and Inner Mongolia are the major furfural sources for
furfuryl alcohol producers in Shandong province. To guarantee
the self-supply of raw material, quite a few large furfuryl
alcohol producers in Shandong province have constructed
furfural units in Northeast China themselves or in collaboration
with other local companies. The total capacity of these furfural
units is around 60 thousand t/a, accounting for around 40% of
the total furfural capacity in Northeast China and Inner
Mongolia.
   Shandong province was the origin of the furfuryl alcohol
industry in China. The furfuryl alcohol sector in the province
has a long development history and a relatively high processing
level. Compared with other regions, the production cost of
furfuryl alcohol in Shandong province is 10% - 20% lower on the
average.

3. Henan province

There were 30 furfural producers in Henan province in 2005. The
total capacity was 50 thousand t/a and the output was around 30
thousand tons. There were 6 furfuryl alcohol producers in the
province. The total capacity was 40 thousand-50 thousand t/a and
the output was around 30 thousand tons.
   Due to the unduly high geographic concentration of new units
in Henan province, the furfural sector there faces a corncob
shortage. To make matters worse, several large xylose and
xylitol units recently constructed in Henan province also need
great quantities of corncobs. The raw material shortage is
therefore aggravated. The raw material cost for furfural
producers has drastically increased, and some producers
suspended production in 2005 due to problems in raw material
availability.
   The major problem before the furfuryl alcohol sector in Henan
province is the vicious competition in exports. To compete for
international market shares, producers minimize their price
quotes to foreign clients. As the price of furfural has
unexpected ups and downs, it is difficult to control the
production cost, and furfuryl alcohol producers find it hard to
sign long-term purchase contracts with foreign clients. In
addition, due to the unfavorable geological location the export
of furfuryl alcohol from Henan province has a high freight cost
compared with Hebei, Shandong and Liaoning provinces.
   Shanxi and Hebei provinces also have a furfural and furfuryl
alcohol capacity of around 50 thousand t/a. Similar to Henan
province, the furfural and furfuryl alcohol sector in these two
provinces is faced with the problem of rising production cost.

Export downslide in 2006

Furfural and especially furfuryl alcohol production in China
still has to depend on exports. The exported amount of furfural
and furfuryl alcohol has constantly increased in recent years.
Exports reached 114 thousand tons in 2005, an increase of 42.8%
over 2004. The export of furfural and furfuryl alcohol to the
United States and Europe however fell dramatically in 2006, with
grave impact on the domestic furfural and furfuryl alcohol
market. China exported 25 300 tons of furfural from January to
October 2006, a drop of 19.7% from the same period of 2005, while
exports of furfuryl alcohol fell to 55 100 tons, a drop of 14.3%.

Expansion of new markets and new applications

The demand for furfural and furfuryl alcohol in the
international market will maintain stable growth for the next
few years. Due to problems in environmental impact and cost, the
output of furfural in advanced countries such as the United
States and European countries will decline further. Owing to the
relatively low production cost of furfuryl alcohol in China, the
international market shares of domestic furfural and furfuryl
alcohol will still expand. For example, the average annual
growth in the amount of furfur