China Benzene in Short Supply
Year:2013 ISSUE:11
COLUMN:ORGANICS
Click:198    DateTime:Nov.06,2013
China Benzene in Short Supply

By Han Yongchun, Sinopec Qilu Petrochemical Company


I. Supply will remain tight


1. Output increases slowly

In 2012, China’s production capacity for benzene increased 720 kt/a, bringing the total to 9.42 million t/a. New production units are owned mainly by China’s two oil giants, Sinopec and PetroChina.
Sinopec holds 48% of China’s total benzene capacity, while PetroChina has 25%.
The benzene industry is becoming more and more attractive, and many domestic and foreign enterprises have entered the industry in recent years. Recently, Zhejiang Huafon Spandex Co., Ltd. plans to invest RMB500 million to build a benzene plant in Liaoyang city of Liaoning province.
Petroleum benzene, which is made from crude oil, is usually a byproduct of oil refining, ethylene production, or para-xylene (PX) production, accounting for 43%, 34% and 18% of the total domestic output of petroleum benzene, respectively.
Byproduct of oil refining. In 2012, the consumption of refined oil in China reached 267 million tons with an annual growth rate of 8% in the past four years. Considering the slow global economic recovery, the growth demand for refined oil in China will decline to about 4% in 2013.
Byproduct of ethylene production. In the past two years, low-cost ethylene production facilities using ethane dehydrogenation in the Middle East and the United States have been put into operation, one after another. Therefore, Chinese ethylene producers, most of which use naphtha as raw material, have been affected significantly. The annual average growth rate of ethylene output from 2007 to 2012 was 9.7%.
Byproduct of PX production. PX is in short supply due to the enormous expansion of PTA capacity. The operating rate of PX equipment in China is very high, and the output of benzene byproduct increases accordingly. If all new PX production units built after 2012 are put into operation on schedule, the annual average growth rate of PX output will be 14.3% from 2013 to 2015.
According to the above analysis, with the growth of refined oil consumption slowing down and naphtha-based ethylene production being impacted, the output of petroleum benzene from oil refining and ethylene production will decrease. However, the output of benzene from booming PX production has stopped the overall benzene output from plummeting. On the whole, the growth of benzene output in 2013 is estimated to remain slow.

2. Import dependence rises as supply gap increases

In 2012, China's benzene output was 6.626 million tons, down 4.1% (284 kt) from the previous year. The operating rate of benzene equipment was about 70%. The apparent consumption was 7.016 million tons. The four largest downstream products of benzene are styrene, phenol, caprolactam/adipic acid and aniline, accounting for 49%, 14%, 17% and 10% of the domestic benzene consumption, respectively. Estimated from the capacities of downstream products, the supply gap of benzene in 2012 was about 850 kt.
According to customs statistics, the import volume of benzene was 439 kt in 2012, up 136.6% year-on-year. China’s dependency on foreign petroleum-based benzene increased sharply.

3. Downstream capacity increases rapidly

Although the production scale of benzene in China continues to increase, the ever-growing demand for benzene from downstream industries cannot be satisfied. The supply will become even tighter in the future. Meanwhile, the number of production units under construction or to be constructed for downstream products, such as styrene, phenol/acetone, cyclohexane/caprolactam and aniline, is increasing.
Styrene. New capacity to make styrene built in 2012 amounts to 360 kt/a. In the next two years, several more new styrene plants will be put into operation. For example, Abel Chemical (Jiangsu) Co., Ltd. is planning to build a 500 kt/a styrene plant in Taixing Economic Development Zone. Considering the current 320 kt/a styrene plant in SP Chemicals (Taixing) Co., Ltd., Taixing city will become the largest styrene production base in east China. Three styrene production units using rare ethylene in catalytic dry gas and benzene from aromatics extraction are expected to be started up 2013 by Sinopec Jiujiang Company, Sinopec Jingmen Company and Sinopec Dongxing Company. Meanwhile, the production scale of products incorporating styrene, such as ABS, SBR and SBS elastomers, continue to expand. It is expected that by 2015, the domestic demand for styrene will exceed 10 million t/a.
Phenol. Since new phenol production units with a combined capacity of 558 kt/a were built in China in 2012, the domestic phenol capacity totaled 1.45 million t/a at the end of last year. The total output is expected to reach 1.1 million tons in 2013, an increase of 11% year-on-year. New phenol/acetone production units with a capacity of 2.76 million t/a (1.720 million t/a of phenol and 1.04 million t/a of acetone) will be built in 2013 and 2014.
Caprolactam. Currently, the total caprolactam production capacity in China is 1.21 million t/a, including 200 kt/a in Sinopec Baling Company, 160 kt/a in Sinopec Shijiazhuang Company, 200 kt/a in DSM (Nanjing) and 50 kt/a in Zhejiang Juhua Group. Three new caprolactam plants that started operation in 2012 belong to Shandong Haili Chemical, Shandong Hongye Group and Zhejiang Hengyi Group, each having a capacity of 200 kt/a. It is expected that at least 600 kt/a new capacity will be put into operation in 2013, and the total domestic capacity will exceed 2 million t/a by 2015.  
Aniline. By the end of 2011, all 19 aniline producers in China had a combined capacity of 2.21 million t/a. The demand for aniline in the domestic market was 900 kt in 2011. Together with the production of aniline for in-house use within some enterprises, the total consumption of aniline in 2011 was about 1.5 million tons. The new aniline production units put into operation in 2012, including two 120 kt/a production lines in Shandong Jinling Group (started operation from the end of May), a 130 kt/a unit in Shanxi Tianji Group (started operation from October 31) and a 200 kt/a unit in Ningbo Wanhua Chemical (run tentatively in November), have a combined capacity of 570 kt/a. It is expected that about 500 kt/a aniline capacity will be constructed in 2013.
Cyclohexanone. China’s production capacity for cyclohexanone increased 840 kt/a in 2012. Most of the cyclohexanone output is for in-house use to produce adipic acid and caprolactam, except at Shandong Zhonglian Chemical, which has no downstream production units. In 2013 and 2014, 600 kt/a capacity will finish construction and be put into operation, and all of these new plants will be equipped with caprolactam production units.
Adipic acid. The domestic capacity to make adipic acid is 1.22 million t/a. About 690 kt/a of new capacity will finish construction in 2013. The total capacity in China is expected to exceed 2.5 million t/a by 2016.

4. The gap between supply and demand will be expanded sharply

The new capacity to make petroleum benzene to be built in 2013 is 740 kt/a, while that to make pure benzene through hydrogenation of coking benzene is 800 kt/a. Meanwhile, the demand for benzene will increase about 2.7 million t/a, and that from the production of styrene, phenol, caprolactam and aniline will increase 5%, 5%, 6% and 8% compared to 2012, respectively. Therefore, the gap between supply and demand for benzene will expand sharply.
Some of the new benzene plants to be built in China from 2012 to 2015 are listed in Table 1.
Table 2 shows the demand for benzene in 2013 for production of some downstream products.
The domestic demand for benzene is expected to reach nearly 10 million t/a by 2015, including about 8 million t/a of petroleum benzene and 1.8 million t/a of coking benzene. Consumption for the production of styrene, phenol, cyclohexanone and aniline is expected to reach 8.4 million t/a by 2015.

II. Major profits move up the value chain

1. The domestic styrene industry maintains only meager profits

In December 2012, benzene prices in the Asian market exceeded US$1 500/t (FOB Korea). The prices of styrene have been dragged up significantly since then. However, domestic styrene producers have failed to benefit very much from the soaring price and maintained only meager profits. The operating rate of styrene equipment hovers around 70%.
China’s styrene industry operated at a loss in the first half of 2012. The industry became slightly profitable in June, and the profitability increased substantially in September, reaching the highest level of the year. The soaring styrene prices make things much more difficult for downstream polystyrene producers. Because of the shrunken export volume and the slowdown of China’s economic growth, downstream industries that use styrene are struggling. Expandable polystyrene (EPS) plants, collectively the largest domestic consumers of styrene, have low operating rates. In October, the operating rate of EPS equipment in China was 55%, and the figure decreased to 40% in November.

2. The phenol industry is barely profitable

According to market analysis, because benzene prices in Asian market are soaring and the price difference between benzene and phenol is decreasing rapidly, it is extremely difficult for phenol producers to be profitable. Asian phenol producers have begun to cut back production. In December 2012, the contract price of benzene hit a record high, reaching US$1 430 /t, while the spot price of phenol was only US$1 500/t. Although the phenol price is higher than that in June 2012, which was US$1 200/t, the small price difference between benzene and phenol cannot make phenol producers profitable. The minimum price difference under which phenol producers can make a profit is about US$300/t. Apparently, phenol producers are losing money. Especially Chinese phenol producers – in producing one ton of phenol, they lose an average of almost RMB1 000.


Table 1 New benzene facilities to be built from 2012 to 2015 in China

Company    New capacity (kt/a)    Startup
PetroChina Fushun    200    October, 2012
Shanghai Huachen Energy    30    September, 2012
PetroChina Daqing    120    October, 2012
Sinopec Jiujiang    30    August, 2012
Bluestar Shenyang Chemical    30    July, 2012
Hebei Xinqiyuan Energy    80    First quarter, 2012
Xiameng Xianglu Dragon Group    230    The end of 2012
PetroChina Sichuan    350    Postponed to 2013
Sinopec Wuhan    140    The 800 kt/a ethylene plant will start production in 2013.
Sinopec Yanshan    200    The project was approved.
PetroChina Huabei    120    2014
Sinopec Hainan    220    July or August 2013
Shandong Dongming Petrochemical    30    February, 2013



Table 2   Demand for benzene in 2013 for production of some downstream products
Downstream product    New capacity (kt/a)    Consumption of benzene per ton of product     Increase of demand for benzene (kt/a)
Styrene    580    0.79    458
Phenol    665    0.92    612
Caprolactam    800    0.95    760
Cyclohexanone     520    1.00    520
(with caprolactam)
Total    2350        



In 2012, the maximum profit margin to produce bisphenol A using phenol was RMB700/t, and the maximum loss was around RMB500 to 700/t. The loss period of bisphenol A producers was relatively long. Due to high production cost, some enterprises postponed starting operation of their new facilities, and some stopped production of their existing plants for overhaul.

3. The cost pressure of caprolactam production increases

According to cost accounting, the price of caprolactam should be RMB10 000/t higher than that of benzene. Therefore, it should be maintained at around RMB20 000/t. Since the normal production cost of caprolactam is around US$1 200 to 1 300/t, most producers already operate at a loss. And the worse is yet to come. The startup of new caprolactam units will exert more pressure to the market.

4. The aniline industry maintains only meager profits

The price difference between aniline and polymeric MDI increased from RMB5 000/t in early 2012 to RMB13 000/t at the end of September. Downstream MDI producers are hugely profitable, while aniline producers face problems like high costs, low profit margin and insufficient capacity utilization. According to incomplete statistics, in early December 2012, many aniline production units with a combined capacity of 750 kt/a (excluding the matching downstream production facilities) stopped or cut back production, leading the domestic operation rate to a decrease of five percentage points. Currently, the operating rate of aniline equipment in China is below 45%. Supply and demand are seriously out of balance.

5. Adipic acid producers face increasing cost pressure

In the second half of 2012, due to the high prices of benzene, the price difference between benzene and adipic acid decreased to US$400/t, while for adipic acid producers, the price difference should be greater than US$500/t in order to be profitable. Currently, due to high production costs, operating rates of most Asian producers hover around 50 to 70%, and their inventory is controlled at a moderate level. Since the benzene price is still running high, Chinese adipic acid producers operate at a loss.

III. Summary

It is expected that the supply of benzene in the domestic market will still be tight in 2013. Market prices may remain relatively high, but not for too long. Overcapacity in downstream industries will become more severe. Enterprises will become less profitable. Downstream industries are expected to show greater losses. It remains to be seen whether downstream producers of aromatics materials will still be profitable. Nobody should be blindly optimistic about the future of the domestic aromatics market, due to sluggish downstream markets.