Challenge for China’s Phenol Acetone Industry

By Yu Guoliang, Sinopec Qilu Branch

1 China's supply and demand of phenol/acetone being more difficult to balance

(1) Supply situation changed
In 2012 two new phenol/acetone plants started up in China, adding 670 000 t/a of capacity, of which 420 000 t/a for phenol and 250 000 t/a for acetone. As of the end of 2012 China had 8 phenol/acetone manufacturers with 11 production facilities, its total production capacity of phenol reached 1.31 million t/a and that of acetone was 785 000 t/a. New manufacturers are Shiyou Chemical(Yangzhou) Limited Company of Kingboard Chemical Holdings Ltd. and Weiyuan Chemical Company of Shandong Lihuayi Group.
In 2013 the planned capacity from four new projects is 1.76 million t/a, in which 1.1 million t/a for phenol and 660 000 t/a for acetone. If these four new projects will start up on schedule, China will have twelve phenol/acetone manufacturers with 2.41 million t/a of phenol capacity and 1.445 million t/a of acetone capacity.
(2) Production increased significantly
With the rocketing of production capacity, China's phenol production followed to lift. China produced 290 000 tons of phenol and 180 000 ton of acetone in 2003. To avoid risk, some manufacturers cut down operation rate or ceased production to overhaul in 2012, the phenol production was 950 000 tons that was nearly 3.3 times of that in 2003 and the acetone production in 2012 was 580 000 tons with an average operation rate being around 75%.
(3) Imports went down
China is now the major importer of phenol worldwide and imported 594 000 tons in 2012 with a year on year decline of 22% due to domestic expansion. The imports accounted for around 40% of China's total consumption. In 2012 China imported 690 200 tons of acetone, a decline of 7.3%. However, there is no sufficient reason to predict that the import of phenol will continue to tumble.  
(4) Supply tends to surplus
There will be many new projects to start up in China in 2013-2016, which will add 2.7 million t/a of new capacity. The nation's total phenol capacity will exceed 3.5 million t/a, far surpassing the demand. In 2014 China will add 665 000 t/a of new phenol capacity and 395 000 t/a of new acetone capacity. In 2015 the new capacity of phenol and acetone will be 480 000 t/a and 300 000 t/a respectively. The planned new capacity in 2016 is 520 000 t/a for phenol and 330 000 t/a for acetone.  
In 2013 China will also start up new projects of producing bisphenol A, an important downstream product of phenol, which will help to digest some new phenol supply. It is predicted that China's total demand for phenol will be around 1.9 million tons. China's apparent consumption of phenol will grow at an annual average rate of 9% between 2011 and 2015, and 8% in the period of 2016-2020. After 2016 the domestic capacity will certainly exceed domestic demand in China. Phenol price has less opportunity to pick up.  

2. Capacity expansion will cause the supply tight of raw materials

(1) To aggravate shortage of pure benzene
In 2013 China's benzene capacity will increase by 1.54 million t/a while the demand for benzene is estimated to add 2.7 million tons. Supply of benzene will be enlarged. It is projected that China's demand for benzene will approach to 10 million tons in 2015, of which styrene, phenol, aniline and cyclohexanone will totally contribute to 8.4 million tons.
(2) Propylene supply being deficit
With the rapid growth of demand, the supply deficit of propylene is widening worldwide in recent years. China's demand for propylene approached to 20 million tons per year, with a shortage of 5 million tons. Among the world's total propylene demand, China shares 15%. In 2010-2012 China's capacity to produce propylene has grown at a yearly average rate of 8.2% while its demand for propylene has risen at 9%, making the import hit new records continuously. China imported 2.15 million tons of propylene, a year on year growth of 22.3%. Rapid growth of demand stimulated the investors to construct propane dehydrogenation (PDH) projects. The total capacity for announced PDH projects reached 9.2 million t/a in China. A 600 000 t/a PDH project in Tianjin and a 450 000 t/a PDH project in Zhejiang province will come on stream in 2013.  

3. Slack support from consumption  

(1) Slow growth of demand from phenolic resin
The phenolic resin sector is the largest consumer of phenol in China. Its application involves in sectors of wood adhesive, plastics, casting molding materials, refractory materials, rubber tire, friction materials, abrasive tools and materials, electronic packaging materials, Impregnated laminate materials, fiber reinforced composites, phenolic foam plastics. By its special application economy, phenolic resin occupies the first in the market of thermoset plastics.    
In the future the phenolic resin sector will keep its growing demand for phenol. Most of phenolic resin makers located in four provinces of Shandong, Jiangsu, Liaoning and Henan. Jinan Shengquan Group ranks the top. The statistic data show that the total capacity of new phenolic resin projects exceeds 600 000 t/a. With the competition becoming harder, the growth rate of capacity slowed down. It is projected that the phenolic resin sector will consume 730 000 tons of phenol in 2013.
(2) A huge challenge for bisphenol A
   Bisphenol A is also a main driver for the growth of phenol consumption. Reportedly China has four new bisphenol A projects to come on stream in 2013, with a total capacity of 535 million t/a. Other announced projects that will start up after 2013 will add more than 1 million t/a of capacity. It is predicted that bisphenol A will replace phenolic resin to be the biggest consumer of phenol in 2017.
But, a strict challenge will possibly have an impact on demand for bisphenol A. EU prohibits importing or selling plastic milk bottle containing bisphenol A, so does China. Some players predicted demand for bisphenol A will decline by 1%-4% in 2012-2015, reducing demand for phenol.
(3) MMA to grow up
Global demand for acetone was 5.9 million tons in 2012, of which one quarter was consumed by the production of methyl methacrylate (MMA). MMA can be used to make PMMA, casting sheets, and acrylate resins for making coatings and emulsion. The global demand for MMA is predicted to increase 5% year on year, reaching 3.25 million tons. In 2012 China has 568 000 t/a capacity of producing MMA and consumed 522 000 tons. The consumption in China is expected to grow at a rate of more than 10%.   

4. Integration of production chain is inevitable

The biggest problem for Chinese phenol/acetone sector is the capacity surplus due to overheated investment spurred by the local governments. The whole sector has difficulties to develop sustainably. Manufactures should promote technical innovations, cut consumption of energy and raw materials. New comers should take a caution. Fully utilization of acetone can help to reduce the production cost. Methyl isobutyl ketone and isopropanol have potential to digest surplus acetone.