Demand for Epichlorohydrin Increases Stably

Epichlorohydrin (ECH) is an important organic raw material. It
is mainly used to produce epoxy resins and is also used in the
production of synthetic glycerin, chlorohydrin rubber, wet
strength agents for paper, glycidol ethers, ion exchange resins,
water treatment chemicals and flame-retarding agents.

Basic global supply /demand balance

The world's capacity to produce ECH was more than 1.46 million
t/a in 2006. The United States, Western Europe and Japan are
major ECH production regions. The capacity of Dow Chemical,
Solvay and Shell accounts for around 50% of the world total.
   The United States and Japan are major ECH exporters. Asia and
Eastern Europe are major import regions. The supply and demand
are basically balanced in Western Europe. There is an overall
supply/demand balance in the world ECH market today. The United
States, Western Europe and Japan are major ECH consumption
regions. With the development of the epoxy resins sector, the
demand for ECH in Asia, especially in China, is increasing
rapidly.

Rapid capacity expansion

There were 6 ECH producers in China in 2006. The total capacity
was 264 thousand t/a, the output was around 120 thousand tons,
the net import amount was around 145 thousand tons and the
apparent consumption was around 265 thousand tons.
   The rapid development of downstream sectors has led to a
drastic demand increase of ECH in recent years. The epoxy resins
sector, in particular, has grown rapidly. Besides, a huge supply
shortage, bright development prospects and high profit rate have
also attracted the enthusiasm of domestic investors for the
construction of ECH units. It is expected that the capacity of
ECH in China will be increased by 190 thousand t/a at the end
of 2007 to reach a total of 454 thousand t/a.

Drastic demand growth

The apparent consumption of ECH in China was 79.5 thousand tons
in 2001 and reached 264.7 thousand tons in 2005 with an average
annual growth of 27.2%.
   The rapid demand increase in the epoxy resins sector is the
major driving force for ECH consumption. The consumption of ECH
in the epoxy resins sector accounts for around 90% of the total.
Other consumption is 4% for synthetic glycerin, 2% for
chlorohydrin rubber and 4% for others. Epoxy resin producers in
China are mainly distributed in Jiangsu, Anhui, Guangdong,
Liaoning and Shandong provinces. They are also major ECH
consumption regions.

Constant import increase

Due to factors in technology and cost, some ECH producers in
China have suffered losses in the past few years. With the rapid
demand growth in the domestic market, importation has constantly
increased, with 145.4 thousand tons imported in 2006, an
increase of 34.6 thousand tons over 2005.
    The amount of ECH imported from the United States in 2006
was the biggest. Russia, Taiwan province and Korea followed
close behind. As ECH produced in the United States is mainly
supplied to its domestic market and ECH produced in Japan has
a relatively high price, with fine chemical producers as major
users, their influence on the Chinese market is relatively small.
Owing to convenient transportation and high quality, ECH
produced in Korea is being sold by dealers in great quantities
and therefore has considerable influence on the Chinese market.
    Importers holding the first six places in terms of imported
amount in 2005 were mainly storage/transportation companies and
epoxy resin producers. The amount imported by
storage/transportation companies accounted for 28.61% and the
amount imported by epoxy resin producers accounted for 19.43%.
   On September 21st, 2005 the Ministry of Commerce made a
preliminary ruling, stating that dumping really existed in the
import of ECH originated from Russia, Korea, Japan and the United
States, and adopted temporary antidumping measures, imposing a
warranty fund. (CCR 2005, No. 28) On June 28th, 2006 the Ministry
of Commerce issued an announcement, deciding to impose an
antidumping tax on the import of ECH originating from Russia,
Korea, Japan and the United States from June 28th, 2006 for a
period of five years. (CCR 2006, No. 20)

Reducing import dependence

With the completion of the 30 thousand t/a unit in Jiangsu
Yangnong Chemical Group Co., Ltd., the 40 thousand t/a unit in
Shandong Xinyue Chemical Group Co., Ltd. and the 80 thousand t/a
unit in Shandong Haili Chemical Co., Ltd., the ECH market supply
changed greatly in 2006. Due to the increase, there was even a
short period of oversupply in the domestic market. According to
market analysts, however, with the increased demand in the epoxy
resins sector and the expansion of the export market, the
domestic ECH market will be self-sufficient and import
dependence will be greatly reduced.

Expanding application sector and overseas market

ECH in China is mainly used in the production of epoxy resins
and synthetic glycerin. The consumption in chlorohydrin rubber,
amide ECH resins, glycidol ethers, flame-retarding agents and
fine chemicals is very small. Application sectors for ECH are
yet to be expanded to make the consumption structure more
rational.
   After the completion of new ECH units, there will be an
oversupply of ECH in the domestic market. It is an inevitable
trend for the ECH sector to expand overseas markets and
restructure domestic resources.

Table 1  Major ECH Producers in China in 2006
(thousand t/a)
Producer                                               
Capacity
Chlor-Alkali Plant of Sinopec Qilu Petrochemical Co.    32
Epoxy Resin Plant of Hunan Yueyang Petrochemical Co.    34
Tianjin Chemical Plant                                  30
Shandong Dongying Liancheng Chemical Co.                20
Jiangsu Yangnong Chemical Group Co.                      30
Shandong Xinyue Chemical Group Co.                      40
Shandong Haili Chemical Co.                             80
Source: CNCIC

       Table 2  ECH Units Being Constructed in China     
(thousand t/a)
Producer                       Capacity       Remark
Shandong Haili Chemical Co.     80    to start production in
2008
Bluestar New Chemical Materials Co.     30    to start
production at the end of 2007
Tianjin Chemi