More Fluctuation of Aniline Prices in 2H 2010    
By Liang Cheng, Sinopec Nanjing Chemical Industry Company Limited   

Owing to the financial crisis and a shrinking domestic market, China did not add new aniline capacity in 2009. In the first half of 2010 only Sinopec Nanjing Chemical Industry Company Limited added capacity - doing so by putting on stream a new 90 000 t/a production unit at the end of May. Some existing aniline makers conducted a little renovation to their facilities. At the same time some small factories shut down. China's aniline capacity was 1.735 million t/a as of the end of June 2010, an increase of 75 000 t/a over 2009's 1.66 million t/a capacity. Now the capacity of commodity aniline is around 1.275 million t/a, slightly higher than 2009.
   Both the production and supply of aniline was brisk in the first half of 2010. The operating rate of the entire sector was slightly higher than in 2009. Many small and medium plants were in suspended or intermittent production while major producers maintained a relatively high operating rate. The operating rate of some big producers even exceeded 90%, much higher than the sector's 2009 overall operating rate of 64%.
   Major factors for the brisk production and market sales as well as the high operating rate of major producers in the first half of 2010 were possibly as follows:

   * Some small and medium factories were in suspended or intermittent production.
   Amid impacts of the financial crisis, some aniline makers such as Henan Kaipu Chemical Company Limited, Jiangsu Anpon Electrochemical Company Limited and Shandong Huayang Dier Chemical Company Limited stopped production in 2008 due to various factors and chose not to restore production in the first half of 2010. Handan New Sunlight Chemical Company has been in a state of intermittent production.

   * The unstable supply of hydrogen led to a relatively low operating rate for some producers.
   Due to the inadequate supply of hydrogen, Jiangsu Leasty Chemical Company Limited has hardly operated from January to June this year and now is planning to quit aniline production permanently. Tianxiang Chemical Factory of Shandong Haihua Company Limited stopped production entirely from January to April. It restored production at the end of April, but due to the inadequate supply of hydrogen, only operated at around 50% of capacity. Production was once again suspended in mid-June because of hydrogen supply problems. Jiangsu Dahe Chlor-Alkali Chemical Company Limited, Jiangsu Ruixiang Chemical Company Limited of Jiangsu Yangnong Chemical Group, PetroChina Lanzhou Petrochemical Company, Jiangsu Meilan Group and SP Chemicals (Taixing) Company Limited also stopped production or operated well below capacity from April to May due to hydrogen supply problems. Due to the inadequate supply of hydrogen, the operating rate in Jiangsu Ruixiang Chemical Company Limited was only 30% in mid-June and still has not run well as of the end of July.

   * There were also other factors causing suspension of production.  
   Chongqing Changfeng Chemical Industry Company Limited ran at low load in the first half of 2010 due to the inadequate supply of natural gas. Shanxi Tianji Coal Chemical Industry Company Limited suspended production twice in March due to malfunctions and also conducted a one-month overhaul in May. Other producers suspended production several times due to malfunctions such as equipment failure and the market supply of aniline was significantly affected.
   Because of problems such as raw material supply, the output of many aniline factories was relatively small in the first half of 2010. Meanwhile, domestic demand was brisk. Therefore major aniline producers operated at a relatively high rate. Affected units were mainly small and medium plants, so the average operating rate of the sector in the first half of 2010 was higher than in 2009 and economic benefits to major producers were quite satisfactory.
   The overall price trend of aniline in the first half of 2010 was basically synchronous with the price trend of pure benzene. Compared with the price difference between pure benzene and aniline in 2009, the price of aniline in the first half of 2010 could be said to have some ups and downs at a relatively high level.
   In January, the price of aniline increased constantly as it had in the fourth quarter of 2009. As the price of pure benzene increased, aniline downstream clients made purchases for hoarding before Chinese New Year so as to ensure the normal supply during the festival and the stable production after the festival. The operating rate of aniline in China was not high this month. There was therefore a supply shortage of aniline and the price was a little higher than at the end of 2009.
   In February, the market transaction volume fell off and the prices started to go down due to a drop of pure benzene prices and the completion of downstream clients' hoards. After Chinese New Year, stimulated by a price rise for imported pure benzene and a recovery of demand for aniline in China, the transaction price became stable. There were even shortages of aniline in some areas and the prices picked up slowly.
   In March, some aniline plants were off line. The reserves hoarded by downstream clients were used up. There was also not much inventory held by aniline producers. A shortage, seldom seen in the aniline market, developed, and the prices were pushed up. The price of raw material pure benzene was firm. The price of aniline in all major consumption areas in China increased to RMB11 300 per ton at the end of March.
   In April, the brisk season for pesticide production, domestic demand for aniline grew again. Aniline prices rose fast at the beginning of the month. The downstream demand was robust and the shortage could hardly be eased. Despite a constant increase of operating rates among major producers, the market price of aniline in April went up constantly due to various factors such as the rapid growth of exports of both pesticides and rubber assistants, and the firm price of raw material pure benzene. The mainstream price of aniline in eastern China increased to RMB11 900 per ton at the end of April.
   In May, aniline was still in short supply in China and the market price maintained the same rising trend as in April. The demand for rubber assistant methylene diphenyl diisocyanate (MDI) was stable and the mainstream price of aniline in eastern China exceeded RMB12 000 per ton in mid-May. The price of pure benzene started to go down, but the price of aniline went up. Downstream clients, therefore, started to take a wait-and-see attitude. Aniline transaction volume dropped drastically. The price of pure benzene fell again at the end of May. Losing support from cost, the high price of aniline could no longer be maintained. A round of drastic price reduction began and the price of aniline collapsed to RMB11 000 per ton at the end of May.
   In June, with fears of a second dip of trading economies overseas, downstream clients took a cautious attitude in purchasing raw material and were not willing to build up inventory. The overall operating rate of aniline producers was restored. The price of aniline, therefore, started to go down. Despite some increases of pure benzene prices in mid and late June, the price of aniline only stopped going further down and became stable with no significant increases. The mainstream price of aniline in eastern China was RMB10 700 per ton at the end of June.
   In July, owing to the supply shortage of aniline caused by factors such as