Formaldehyde Industry on a Difficult Path   
Zhou Wande    President Of China Formaldehyde Industry Association   

Excess capacity hindering development

The formaldehyde industry in China has a history of nearly 60 years and has been especially dynamic since the mid-1990s when the industry started growing rapidly. Figure 1 shows the distribution of China's formaldehyde capacity in 2009. Obviously north China is the most concentrated area of the formaldehyde industry, hosting about 33.81% of the total capacity, while middle, east and south China are each home to 10% more of the industry than the other areas. However, shaken by the economic recession, the formaldehyde market slowed down in the last two years, particularly in 2008 when most Chinese formaldehyde factories suffered serious impacts from the global financial crisis, even leading to production cutbacks. Currently, the formaldehyde industry in China still suffers from excess capacity, while many downstream factories keep building or extending their own formaldehyde facilities, bringing more supply-demand imbalance to the market. On the other hand, there is a tendency for nonstandard and uncompetitive formaldehyde facilities to shut down under the circumstances of market competition and strict production policies.
    The Chinese chemical market began to warm up in the first half of 2010, influenced by the global economic recovery. Downstream products stimulated demand in the formaldehyde market and periodic prosperity appeared in most areas. Compared with previous years, production rates were higher with operating rates rising to 70% in some regions and even to 50% in areas with much excess capacity such as Sichuan and Jilin provinces. Profit was enhanced markedly in those formaldehyde factories under standard management. Unfortunately, the improvements in the formaldehyde market slowed down from the third quarter of 2010 and have remained slow.
    According to an investigation by China Formaldehyde Industry Association, in 2009 China had approximately 25 million t/a of formaldehyde capacity, 46.8% of the total global capacity, and owned 511 formaldehyde factories with a total of 674 production units, of which 273 units were able to produce 50 000 t/a formaldehyde.
    In 2009, formaldehyde output was 15 839 000 tons by using 7.13 million tons methanol and the average operating rate was 63.6%.
    For some time to come, excess formaldehyde capacity will be a tough problem in China; hence it is fairly essential to limit new facility construction, because formaldehyde-consuming factories prefer to self-build formaldehyde units, which take advantage of low cost, short process and matured technology. In face of this challenge, formaldehyde factories have to concentrate on new application markets such as in agriculture, horticulture, medicine, agricultural chemicals and energy etc, to maintain market share.  

Sales Overly Reliant On Building Materials Market

Sellers of formaldehyde in China currently rely mainly on urea-formaldehyde resin (UF), phenol-formaldehyde resin (PF), melamine-formaldehyde resin (MF) which are in the application of lumbering and building materials industry, and making these three resins consumes approximately 60 to 70% of the nation's formaldehyde. In spite of this situation, downstream products tend to be more popular in the application of paraformaldehyde, urotropine, polyoxymethylene and dimethoxymethane etc. In Linyi, Shandong province, there are 32 formaldehyde factories and six of them produce paraformaldehyde, while formaldehyde factories in Shanxi province already started up specialized urotropine production facilities, similar to polyoxymethylene factories. Meanwhile, attention must be paid to overbuilding of dimethoxymethane facilities.
    China is the biggest consumer and producer of formaldehyde, while construction and wood-processing take primary roles which directly influence the speed of formaldehyde consumption. On the other hand, for the purpose of environmental protection, formaldehyde content in decorating materials has been strictly limited by government policy. Furthermore, zero-formaldehyde conglutination technology is becoming more popular and performs well at a lower cost, so it will decrease the consumption of formaldehyde to some extent. Generally, the rigid demand will keep stimulating formaldehyde consumption to increase for the next few years within limits.
    In recent years, the consumption of UF, PF and PF declined slightly. Table 2 indicates the consumption of synthesized UF wood-based panel in the last three years.
    Compared with UF, PF and MF, consumption of other formaldehyde downstream products have risen fairly rapidly from 2007 - for instance polyoxymethylene, paraformaldehyde, urotropine, 1,4-butanediol (BDO), diphenyl-methane-diisocyanate(MDI), dimethoxymethane, slow-release fertilizers, pyridine and its compounds, etc. Polyoxymethylene, paraformaldehyde, BDO, MDI and pyridine had a distinct recovery in sales which contributed an 800 000-10 000 000 rise in formaldehyde consumption in 2010. However, since the formaldehyde industry overly relies on construction and exported furniture, other downstream products account for only little portions of total consumption which are mostly unstable. Fig 2 shows the consumption structure of formaldehyde in 2009.
    BDO  Capacity and output of BDO in China grew wildly in recent years. From 100 000 t/a in 2008, the capacity rose up to 450 000 t/a in 2009 and was estimated to reach 510 000 t/a in 2010. The BDO output was 230 000 tons in 2009 in need of 180 000 tons formaldehyde as 0.78 tons of formaldehyde is consumed in making one tons of BDO. In this case, the predicted BDO output of 300 000 tons in 2010 would have required 240 000 tons of formaldehyde.
    MDI  The capacity and output of MDI in China had a average 30% in recent years. In 2009, MDI capacity rose to 1.1 million t/a and was estimated to hit 1.45 million t/a in 2010. As making 1 ton of MDI consumes 0.39 tons of formaldehyde, the MDI output of 800 000 tons in 2009 used 310 000 tons formaldehyde, and the output is predicted to hit 900 000 tons in 2010, consuming 350 000 tons of formaldehyde.
    Polyoxymethylene  The output of polyoxymethylene was 128 000 tons in 2009, which consumed 640 000 tons of formaldehyde at the rate of 5:1.
    Paraformaldehyde  The output of paraformaldehyde was 183 000 tons in 2009 and required 640 000 tons of formaldehyde at the rate of 3.5:1.
    Dimethoxymethane  China produced 320 000 tons of dimethoxymethane in 2009 and used up the same amount of formaldehyde at the rate of 1:1. With the influence of stimulated consumption and excess formaldehyde capacity, dimethoxymethane capacity in China has grown incredibly in recent years, exceeding 1 million t/a at the end of 2010. By incomplete statistics, newly added dimethoxymethane capacity in 2010 exceeded 200 000 t/a, which is double that of the previous year. However, oversupply of dimethoxymethane still exists.

Disadvantaged Products in
Consumption Chain

Undifferentiated processing and quality, price reliance on methanol and short sales radiation result in low profits for formaldehyde producers, therefore it is necessary to lower the cost of formaldehyde in order to increase profits. As intermediate products, formaldehyde products perform weakly in the consumption chain. Together with its excess capacity and supply-demand imbalance, its price, profit and payment was squeezed by its upstream and downstream, which li