High Profit Space of Ethylene Oxide Faces Challenges

By Chen Shibin, CNCIC

Ethylene oxide (EO) is an important organic chemical raw material and intermediate of polymers. With the startup of the new units such as Sinopec Tianjin Petrochemical Co Ltd’s 400 kt/a EO/ mono ethylene glycol (MEG) unit, Sinopec Zhenhai Refining & Chemical Co Ltd’s 650 kt/a EO/MEG unit as well as a 200 kt/a EO/MEG unit in China North Industries Group Corporation's subsidiary Liaoning North Chemical Industry Company Limited, China’s EO/MEG production has gained great development.
   At present, China’s EO and its downstream sectors have extremely broad market prospects. Due to its inflammability and explosiveness, EO is not suitable for long-distance transportation and has distinct regional characteristics. However, the domestic capacity to make EO is far from meeting the market demand, so China’s import volume of EO downstream products has increased rapidly over recent years. In addition, compared with the developed countries, the product portfolio of EO downstream products in China is unbalanced, the product variety is far less, and many varieties of products are mainly dependent on imports.
   The world's major EO manufacturers are The Dow Chemical Company, Saudi Basic Industries Corporation (SABIC), Shell, BASF and Formosa Plastics Group. In recent years, the oil refining and petrochemical industry in Saudi Arabia has seen the fast development and the world's capacity to produce EO has also grown rapidly. In 2009, the global EO capacity increased by 1.06 million t/a, with all growth basically from Saudi Arabia. Of which, only SABIC’s newly added capacity reached 600 kt/a.
   With the rapid growth of the domestic economy, the demand for EO in China has increased year-on-year. To meet the growing market demand, many domestic enterprises have constructed new EO units or expanded their existing units for recent years. As of the end of 2010, China had more than 14 major EO producers, the domestic total capacity of equivalent EO was more than 2.14 million t/a and the commercial EO capacity also reached 680 kt/a.
   From the perspective of the industry chain, the demand for EO in downstream sectors is brisk, but there exists a bottleneck in the supply of EO and the raw materials like ethylene and ethanol is sufficient.At current time, the profit among the production chain is concentrated in EO production. The commercial EO is mainly used to produce non-ionic surfactants, ethanolamines, ethers of ethylene glycol and polyether, etc.
   EO downstream products are largely dependent on imports. According to statistics from the customs, in 2011 the total import volume of EO in China reached 48.1 tons, up 225.2% year-on-year, and the imported price climbed to US$25 407 per ton on average, a year-on-year growth of 11.6%. China exported 58.5 tons of EO in 2011, compared with no exports in 2010.
   Considering the general market situation at home and abroad, it is expected that in the next few years, domestic EO will have good market prospects. The reasons are as follows:

1. Diversified investment

EO was made as a byproduct of MEG units in the past. At present, it is produced through adjusting the production of EO and MEG, and major petrochemical companies overhaul their MEG units in succession to further improve the production capacity of EO or make the design for switching the output of EO and MEG when the investments are made. In addition, the investors have also changed from mainly PetroChina and Sinopec to involving many local private enterprises. It is expected that the capacity to make EO in the domestic EO producers excluding PetroChina and Sinopec will account for 30% of the national total in the next a few years.

2. High price patterns will return to a rational status

The price of EO has increased for a long time and this is also the reason for the enterprises to constantly overhaul their units to expand the EO capacity. With the startup of the new EO units, the EO supply will increase and the price of EO will return to a rational status.

3. Diversified raw materials

At present, the mainstream process route is "petroleum - ethylene - EO". In addition, there exist coal-methanol-olefins process route and biological process for the production of EO with ethanol as raw material. The pattern of EO production raw material’s long-term dependence on ethylene will be broken. In the era of high oil price, the ethanol process and coal chemical route will show a cost advantage and pose great threats to the petroleum route for the production of EO.

4. New application

The demand for EO in cement additive sector will continue to grow and this will be an engine for continually supporting EO downstream development. However, it is uncertain that how long the pulling effect can maintain and whether the persistence of demand can form a stable scale.
   In the next 2-3 years, domestic EO industry chain will enter a period of adjustment. The constraints from production expansion, downstream substitutes for imports, environmental protection and logistics have increased the uncertainty of business. The high profit space of EO will faces severe challenges, the price regression and volatility will lead to a fiercer competition, the overheated investment will increase the excess capacity for making EO, and the ultra-long distance of transportation will add the logistics risk.

Table 1 China’s Import and Export of EO   (kg)
Year    Import volume    Export volume
2007    6 605    600
2008    11 070    500
2009    18 592    3 250
2010    14 779    0
2011    48 064    58 494
H1 2012    38 465    105 897
Source: CNCIC