Acetic Acid: Downstream Demand Was Sluggish in 2011   

By Li Zejiang (Research Institute Industrial Economics of CNCIC),
and Shi Hui (China National Building Materials & Equipment Import & Export Corporation)

Capacity grew rapidly

In 2011, despite complex domestic and international economic situations, the capacity and output of acetic acid in China still grew substantially. New acetic acid units in 2011 include: Shaanxi Yanchang Petroleum Corporation's 200 000 t/a unit, Henan Shengyuan Chemical Co Ltd's 300 000 t/a unit, Jiangsu Sopo Chemical Co Ltd's 600 000 t/a unit and Yunnan Yunwei Group's 200 000 t/a unit. As of the end of 2011, there were 31 acetic acid producers in China, with a total capacity of 8.3 million t/a (7 million t/a in 2010), up 18.6% year on year (yoy). In the first 11 months of 2011, the acetic acid output of large and medium-sized producers amounted to 3.8682 million tons; and in the whole year of 2011, it is expected to reach 4.23 million tons (3.838 million tons in 2010), up 10.2% yoy; and the annual industry-wide operating rate was 51.0%, so overcapacity is still grim.

Downstream demand was sluggish

The main consumer areas of acetic acid in China are the vinyl acetate sector (accounting for 32.3% of the total acetic acid consumption) and the acetate sector (taking up 26.1% of the total). In 2011, several vinyl acetate plants in China reduced production due to the inadequate supply of raw material natural gas. Meanwhile, affected by the European and U.S. debt crises, the tightening of the domestic monetary policy as well as the power shortage, downstream white latex and adhesive producers had a low operating rate, and their demand for vinyl acetate continued to slump. In 2011, the consumption growth of vinyl acetate was limited, and the operating rate of China's vinyl acetate industry was only 63%.
   In 2011, the demand for acetates from downstream areas, such as coatings, pharmaceuticals and adhesives, was also in the doldrums, and the operating rate of the whole acetate industry was about 65%.

Exports created a record high

From January to November 2011, China's total export volume of acetic acid reached 661 800 tons. In the whole year of 2011, it is expected to reach around 715 000 tons (216 100 tons in 2010), up 230.9% yoy. In the first 11 months of 2011, China's total import volume of acetic acid was 14 500 tons; and in the whole year of 2011, it is expected to reach around 15 000 tons (58 900 tons in 2010), creating a record low.

Prices went up as a whole

Frequent overhauls and export growth were the main drivers to push up acetic acid prices in 2011. On March 2, Celanese (Nanjing) Chemical Ltd's 1.2 million t/a acetic acid plant was shut down accidentally, setting off the first wave of acetic acid price hikes in China in 2011. In early April, acetic acid prices rapidly rose to over RMB5 000 /t. In late April, the Celanese plant restarted, and Sopo Chemical's new 600 000 t/a acetic acid plant was put into operation. Due to the supply recovery and the low off-season demand, acetic acid prices plummeted like a "free fall" movement. In July, the prices fell to RMB3 600 /t. As the plants that were shut down for maintenance restarted and BP's new acetic acid plant was put into operation,, the domestic supply of acetic acid was restored. At the same time, the main downstream markets, such as acetate and vinyl acetate markets, fell into downturn. Due to these factors, in late September, acetic acid prices began to go down. In the end of October, the prices fell to about RMB2 800 /t. In the fourth quarter, supported by high methanol (raw material) prices, acetic acid prices fluctuated in the range of RMB3 000 - 3 500 /t.
   But overall, the average acetic acid price in China in 2011 was RMB700 - 1 000 /t higher than in 2010. Movements of acetic acid prices in major regions in China in 2010-2011 are shown in Figure 1.

Acetic acid enterprises should improve their overall competitiveness

Currently, China's acetic acid industry is facing the following situations:
    1) Serious overcapacity. In 2011 - 2015, many new acetic acid plants will be built, but the capacity growth of downstream sectors, like vinyl acetate and acetate esters, will be limited;
    2) conventional methanol-carbonylation-based acetic acid plants feature outdated technology, generally small size and high consumption of raw materials and utilities;
    3) the industry concentration of downstream sectors is low, the industrial chain of acetic acid is not well developed, and acetic acid enterprises' risk-resisting ability is weak;
    4) acetic acid enterprises have low operation efficiency but high operation costs, and their resources in raw materials, industrial chain, talents, technology, capital, production management and market should be integrated to further enhance their efficiency.
   Acetic acid enterprises should increase their exports and actively explore new export modes and ways to digest their excess capacity. Meanwhile, they should underscore the research and development of downstream production technology and expand their downstream industrial chains. Large enterprises should also make use of mergers and acquisitions to improve their overall competitiveness, and even go abroad to integrate international market resources to enhance their competitiveness.