Balance of Cyclohexanone Is Likely to Be Toppled        

Cyclohexanone is an important chemical raw material. Globally, around 69% of cyclohexanone is consumed in the production of caprolactam and adipic acid. The remaining 31% are consumed in non-amide applications mainly including various coatings, paints, inks, resin solvents and diluents and solvents for the coating of photosensitive and magnetic recording materials. It can also be used to produce cyclohexanone-formaldehyde resin, cyclohexanone peroxide and antioxidant 4010. With the constant expansion of non-amide applications, the application value of cyclohexanone has been really unearthed. On the whole, the cyclohexanone sector in China has developed driven by the growth of the caprolactam sector.
   China's capacity to make cyclohexanone has expanded rapidly in recent years and the scale of producers has become larger and larger. By the end of 2009 China has nine major cyclohexanone producers, with a combined capacity of 735 000 t/a. Among them, only Sinopec Baling Petrochemical Co Ltd and Shandong Fangming Chemical Co Ltd provide cyclohexanone for sale. Other producers use their cyclohexanone internally in the production of caprolactam and adipic acid, leaving only small amounts for sales. According to statistics, China produced around 590 000 tons of cyclohexanone in 2009, and imported 11.2 thousand tons, with the apparent consumption being around 600 000 tons.

Major Cyclohexanone Producers in China
Producer
    Capacity (t/a)
    Remark
Shandong Hongye Chemical Group Co Ltd
    100 000
    a matched 100 000 t/a adipic acid unit
Shandong Haili Chemical Co Ltd
    100 000
    a matched 140 000 t/a adipic acid unit
Shandong Fangming Chemical Co Ltd
    100 000
Shijiazhuang Coking Chemical Group
    100 000
    a new project started up in 2009
Sinopec Baling Petrochemical Co Ltd
    100 000
Yingshan Petrochemical Plant
    75 000
    a matched 140 000 t/a caprolactam unit
Juhua Group Corporation
    80 000
    a matched 20 000 t/a caprolactam unit
Sinopec Nanjing Chemical Industry Co Ltd
    60 000
    supplied to the 160 000 t/a caprolactam unit of DSM Nanjing East Chemical Co Ltd
Neijiang Tianke Chemical Co Ltd
    20 000
Total
    735 000
Source: CNCIC


   The cyclohexanone sector had several new entrants in 2009. The 100 000 t/a cyclohexanone unit constructed by Shijiazhuang Coking Chemical Group started production in August. The cyclohexanone unit constructed by Shandong Fangming Chemical Co Ltd came online in September.
   Fujian Dongxing Petrochemical Co Ltd, in support of the nearby refining and ethylene integrated project of Fujian Refining & Chemical Co., Ltd, constructed a cyclohexanone unit with a design capacity of 100 000 t/a, which was originally planned to start production at the end of 2009. The date of completion has however been postponed. Moreover, Sinopec Shijiazhuang Petrochemical Corporation is renovating its 20 000 t/a cyclohexanone unit. The unit using toluene as raw material will be renovated to use hydrogenated benzene as raw material. Startup is expected for the first half of this year.
   The caprolactam sector is a consumer of cyclohexanone. For a long term, however, China's caprolactam sector has suffered serious impacts from competitive imported products. The implementation of antidumping tariffs on imported caprolactam has already taken initial effects today. It is estimated that China produced around 325 000 tons of caprolactam in 2009, an increase of 50 000 tons or 18% over the previous year. The apparent consumption of caprolactam in China maintained a trend of rapid increase in 2009. It is estimated that the apparent consumption reached 948 000 tons in 2009, an increase of 220 000 tons or 30% over the previous year. With the rapid increase of demand for nylon cords and engineering plastics in the automobile sector, the caprolactam market in China will surely expand further. Promoted by the development of the caprolactam sector, the consumption of cyclohexanone will still have a space for further growth in the next few years.
   In terms of macro environment, impacts from the financial crisis are still there and the world economy is entering the post financial crisis era. Although there are reasons to be optimistic about the macro economic situation in 2010, judging from various problems before the world economy today the road of economic rehabilitation with the stimulation of macro policies as the key method will by no means be even. When the macro economic environment remains unchanged, the future development of the cyclohexanone market will not be smooth.
    (1) The construction of matched units is lagging behind. Cyclohexanone is a raw material for the production of caprolactam and adipic acid. Most cyclohexanone units have been constructed to match caprolactam or adipic acid units. Little cyclohexanone is for sale and the market volume is relatively small. China's capacity to produce cyclohexanone has expanded unduly rapidly in recent years. Some new cyclohexanone makers have not yet constructed matched caprolactam units. Quite a few small cyclohexanone makers have no ability to construct matched downstream units and have to sell their products in the market, with quite fragile risk-withstanding ability therefore.
    (2) Margin for producers is getting thinner. The market demand has grown steadily, but can hardly be expected to catch up with the expansion of production capacity anytime soon. As soon as the new units come on stream, the market balance between supply and demand will be toppled and there will likely be oversupply. The previously profitable commodity cyclohexanone will become a product with thin margin or even losses, and market competition will be fiercer.
    In terms of cost, China's cyclohexanone producers mostly use the cyclohexylamine oxidization process, in which petroleum benzene accounts for around 60% of the total production cost. Based on historical analyses to prices of both petroleum benzene and cyclohexanone, there is a highly positive correlation. The market price of cyclohexanone has stayed around 2.0-2.5 times the price of petroleum benzene in recent years and a considerable profit space has been maintained. It should be noticed, however, that this coefficient is declining year-on-year. This means that the margin of cyclohexanone is being squeezed.
   Facing future uncertainties, China's makers should make timely preparations and formulate relevant measures to maintain a competitive positive position. On the one hand, they should actively increase the demand and reduce risks of a single-application market. On the other hand, they should highlight the expansion of overseas markets, increase competitive advantages of products and enhance market competitiveness of enterprises.