Xylenol Overcapacity Risks Loom for China

By Li Zejiang, CNCIC

I. Capacity increases fast

In 2000, most of the total output of xylenol in China was made through extraction from crude phenol of coal tar. Because extracted xylenol is not good enough for many downstream applications due to impurities, its share in the total capacity of xylenol decreased from 82% in 2000 to 61.1% in 2011.
   Both the capacity and output of xylenol in China have increased significantly in recent years. In 2009, the total capacity of xylenol was 23 600 t/a, and the output was 13 000 tons. By 2011, the capacity and output increased to 31 000 t/a and 21 000 tons, respectively. The operation rate of xylenol production units in China was 67.7% in 2011.   
   Most production units of coking xylenol in China are built as supporting units of coking units. Currently, about thirty coking xylenol producers with varied production scales are scattered around China, among which Henan Hongye Technological Chemical Co., Ltd. has the largest capacity, 5100 t/a. Other producers include Shouguang Tiancheng Fine Chemical Co., Ltd., Yixing Taige Chemicals Co., Ltd., Heze Resun Chemical Technology Co., Ltd. and Weifang Zhenxinhongtai Chemical Co., Ltd.
The largest producer of synthesized xylenol is Bluestar New Chemical Materials (Ruicheng) Co., Ltd., which has a 10 000 t/a 2,6-xylenol production unit. Other producers, including Nanjing Datang Chemical Co., Ltd. and Xiangshui Fumei Chemical Co., Ltd., can produce 2,4-xylenol, 2,6-xylenol and 3,4-xylenol. The output of 2,5-xylenol and 3,5-xylenol is much smaller than the above three isomers of xylenol, and 2,3-xylenol is only produced in reagent quantities. The capacity of China’s major xylenol producers in 2011 is listed in Table 1.

Table 1 Capacity of China’s major xylenol producers in 2011
Company    Capacity (t/a)
Henan Hongye Technological Chemical Co., Ltd.    5 100
Shouguang Tiancheng Fine Chemical Co., Ltd.    5 000
Yixing Taige Chemicals Co., Ltd.    1 000
Heze Resun Chemical Technology Co., Ltd.    1 000
Weifang Zhenxinhongtai Chemical Co., Ltd.    900
Harbin Yilan Zhongtai Chemicals Co., Ltd.    700
Harbin Shanjiang Fine Chemicals Co., Ltd.     700
Shangdong Deyu Coal Chemical Co., Ltd.    700
Shanghai Baosteel Chemical Co., Ltd.    400
Wenshui Hongtai Fine Chemicals Co., Ltd.    300
Changzhou Zhengya Chemicals Trading Co., Ltd.    300
Shanxi Chengxin Fine Chemicals Co., Ltd.    200
Henan Baoshun Chemical Technology Co., Ltd.     200
Qujing Hengyuan Chemical Co., Ltd.    200
Other producers using extracting process    2 300
Sum of coking xylenol producers    19 000
Bluestar New Chemical Materials (Ruicheng) Co., Ltd.    10 000
Nanjing Datang Chemical Co., Ltd.    1 000
Xiangshui Fumei Chemical Co., Ltd.     500
Other synthesized xylenol producers    600
Sum of synthesized xylenol producers    12 100
Total capacity of xylenol    31 100

   Five new xylenol projects are reportedly under construction or planned. As shown in Table 2, four of them are coking xylenol projects, and the other one is synthesized xylenol project.

Table 2 New xylenol capacity under construction or to be constructed
Company    Capacity (t/a)    Expected Completion Date    Remarks
Xinjiang Hongye Technological Chemical Co., Ltd.    2 000    2013    Subsidiary of Henan Hongye Technological Chemical Co., Ltd., planning to build another 20 kt/a crude phenol refining unit

Henan Baoshun Chemical Technology Co., Ltd.     200    2013    Supporting unit of the 600 kt/a coal tar processing unit

Wuhan Jujiao Chemical Co., Ltd.     570    At the end of 2013    500 kt/a deep-processing of coal tar, currently in the stage of construction preparation

Xiangyang Jindacheng Chemical Co., Ltd.    2 000    2013 or 2014    To synthesize xylenol, currently in the stage of   environmental impact assessment

Shanxi Donglin Chemical Chemical Co., Ltd.     1 000    At the end of 2013    10 000 t/a crude phenol refining unit, currently in the stage of construction preparation

   In recent years, the supply of crude phenol has become tight due to the elimination of obsolete capacity in the coking industry. However, in the next few years, China's coke production is expected to increase steadily, and the proportion of total coal tar consumption that is used in deep-processing industries will gradually increase, driven by government’s favorable policies. By 2015, the output of coke in China is expected to reach 580 million t/a, while the output of coking xylenol will reach 11 kt/a accordingly. Meanwhile, the output of synthesized xylenol will reach 19 kt/a by 2015.
   Overall, the total capacity of xylenol in China is expected to reach 45 kt/a by 2015, and the total output will reach 30 kt/a with an overall operating rate of about 66.7%.

II. Imports will gradually shrink.

China’s import of xylenol continued on an upward trend overall in recent years. The import volume of xylenol increased from 870 tons in 2006 to 1 320 tons in 2011. Both coking xylenol and synthesized xylenol must be imported. With the rapid development of downstream industries of xylenol such as engineering plastics, insulating coatings, pharmaceuticals and pesticides, as well as the maturing of the domestic xylenol synthesis process, the import volume is expected to decrease from 2015.
   Exported xylenol from China is mainly coking xylenol. China’s export volume of xylenol grew from 1 640 tons in 2006 to 1 900 tons in 2011. With the newly constructed or expanded xylenol production units put into production and the development of domestic synthesis process, xylenol capacity may be in surplus in China and the export volume is expected to reach about 3 000 t/a by 2015. The import/export statistics of xylenol from 2006 to 2010 are shown in Table 3.

Table 3 Import/Export statistics of xylenol in China, 2006-2011
Year    Import volume (tons)    Export volume (tons)    
2006    870    1640    
2007    1150    2000    
2008    1060    1770    
2009    1110    1350    
2010    1320    1430    
2011    1400    1900    

III. Consumption market lacks diversity.

China’s xylenol is mainly used to produce products such as engineering plastics, coatings, pesticides, pharmaceuticals and dyes. In 2011, the total consumption of xylenol in China was 20 500 tons, among which the production of polyphenylene ether (PPE) used 10 540 tons, accounting for 51.4%; production of insulating coatings used 7 200 tons, accounting for 35.1%; production of other products such as pharmaceuticals and pesticides used 2 760 tons, accounting for 13.5 %.

1. PPE
PPE is a class of high temperature thermoplastic resins synthesized from 2,6-xylenol by oxidative coupling polymerization. PPE has excellent properties such as dimensional stability and insulativity under long-term loading, a wide working temperature range, excellent water and steam resistance, high tensile strength and impact strength, good creep resistance, good abrasion resistance and electrical properties. It is mainly used in the production of surgical equipment, to replace stainless steel, or to produce gears, blades of leaf blowers, pipes, valves, screws and other fasteners and connectors in the mechanical and electrical industries. It is also used to produce electronic components such as coiler frameworks and printed circuit boards.
The only three companies in China which have the ability to synthesize 2,6-xylenol on an industrial scale – Bluestar New Chemical Materials (Ruicheng) Co., Ltd., Nanjing Datang Chemical Co., Ltd. and Xiangshui Fumei Chemical Co., Ltd. – had a total capacity of 12 100 t/a in 2011. Considering that the output of PPE in China was 8 500 tons in 2011 and to produce one ton of PPE takes about 1.24 tons of 2,6-xylenol, the consumption of xylenol in the production of PPE was 10 540 tons in 2011.

2. Insulating coatings
In the insulating coating industry, xylenol is mainly used in wire enamels for bare copper wires, bare aluminum wires, bare alloy wires and glass fiber covered wires in order to give the wire products insulation property. Coking xylenol is mainly used as raw material and an auxiliary in enameled wires, as well as being used as a solvent to replace methylphenol. With the rapid development of electronic and electrical industries, enamel coated wire has become one of the irreplaceable industrial materials required in almost all devices, instruments and meters which are related to electricity.
   Insulating coating is the largest application field of coking xylenol, accounting for more than 90% of the total consumption. China’s consumption of xylenol in the insulating coating industry was 7 200 tons in 2011, and major consumers include Jiangsu Hengxing Paint Co., Ltd. and Changzhou Olong Electrical Insulation Materials Co., Ltd.

3. Other application fields
Besides the application in the insulating coating industry, coking xylenol can be used as the raw material to produce disinfectants, plasticizers, pesticides and other products. It can also be used as the raw material to extract 3,5-xylenol and 3,4-xylenol. In 2011, the consumption of coking xylenol outside the insulating coating industry was about 1 200 tons.
   Besides PPE synthesis, 2,6-xylenol can also be used as an intermediate to synthesize pesticides and pharmaceuticals. The consumption in this area was about 50 tons in 2011.
   As an important chemical raw material and pharmaceutical intermediate, 2,5-xylenol is mainly used for the synthesis of gemfibrozil, which is a medicine to lower triglyceride levels. It can also be used to synthesize dyes and biologically active pharmaceuticals that have anti-AIDS infection, anti-microbial, anti-arrhythmia, anti-diabetic or other effects. The consumption of 2,5-xylenol in 2011 was about 800 tons.
   3,5-xylenol is mainly used to synthesize XMC Standard, a high efficiency and low toxicity pesticide, and 4-chloro-3,5-xylenol, a preservative. It can also be used to manufacture resins, pharmaceuticals, spices, vitamin E, disinfectants and stabilizing agents for a variety of organic compounds. It can be used as an additive to prolong the life of the cold-rolling oil. It is also widely used in the anti-bacterial and anti-mold treatment process of leather, paper, textiles and photographs. In 2011, the consumption of 3,5-xylenol was about 510 tons.
   The total consumption of other isomers of xylenol, i.e. 2,3-xylenol, 2,4-xylenol and 3,4-xylenol, was about 200 tons in 2011.
   Currently, the consumption market of xylenol in China is not very sound; the application areas of xylenol lack diversity; the industrial applications fields of synthesized xylenol need to be further developed. It is expected that by 2015, the output of PPE will reach 112 000 t/a in China, and the consumption of 2,6-xylenol in producing PPE will be 10 000 t/a; wire enamels production will keep steady growth, and the consumption of coking xylenol in the production of wire enamels will reach 10 800 t/a; with the continuous expansion and consolidation of the application fields, the consumption of xylenol in fields other than engineering plastics and wire enamels is expected to reach 3 600 t/a by 2015.
   Overall, China’s total consumption of xylenol is expected to reach 28 kt/a by 2015.

IV. Suggestions

In the next few years, there is some risk of overcapacity in the domestic xylenol industry. The competition among a large number of coking plants in the crude phenol refining industry will be intensified in the future due to the elimination of obsolete capacity and the gradual stricter implementation of environmental protection. Therefore, it is recommended that investors should think it over before stepping into the xylenol industry. On the one hand, they must ensure a reliable source of raw-material supply by combining xylenol production units with existing coking units. They are also urged to acquire large scale crude phenol processing units with capacity of more than 8 000 t/a through M&A. On the other hand, they should develop open sales channels with downstream users. Since synthesized xylenol has wider application fields due to its high purity and isomeric certainty, investors are recommended to invest in synthesized xylenol projects.