o-Xylene Industry Needs More Capacity and Extended Production Chain

By Yan Jinsheng, Sinopec Tianjin Petrochemical Co., Ltd.

China’s o-xylene capacity was 1.33 million t/a by the end of 2013 and is expected to increase by 200 kt/a in 2014. The expansion lags far behind that of downstream phthalic anhydride however. The persistent supply shortage can hardly be eased, and around 42% of o-xylene has to be imported. Since early 2014, the o-xylene market in China has become even more slack. The high profit of p-xylene has affected the output of o-xylene, and demand for o-xylene has tended to decrease, directly affecting the market of dioctyl-phthalate (DOP), the end product of the industrial chain. The o-xylene/phthalic anhydride/DOP industrial chain faces huge challenges.

1. Development lags and shortage can hardly be eased

(1) The capacity expansion of o-xylene lags far behind that of downstream phthalic anhydride
There are eleven o-xylene producers in China today. The total capacity is 1.33 million t/a, accounting for 19.3% of the world total. The capacity of Sinopec Yangzi Petrochemical Co., Ltd., the biggest producer in China, is 260 kt/a. Table 1 shows major Chinese o-xylene producers in 2013 and their capacities.
Sinopec’s capacity accounted for around 55% of the domestic total in 2013. The remaining capacity was 14% for PetroChina, 6% for CNOOC and remaining 25% for Sino-foreign joint ventures and private enterprises. It is expected that this pattern will not change much in 2014.
China’s o-xylene capacity increased from 530 kt/a in 2006 to 1.33 million t/a in 2013, and 200 kt/a new capacity is expected this year. See Table 2 for detail. The capacity for downstream phthalic anhydride is however around 2.58 million t/a and will reach 3.00 million t/a by the end of 2014. Overall, in China, the capacity for phthalic anhydride is in surplus and the capacity for o-xylene is in sufficient.

Table 1  Major o-xylene producers in China in 2013 and their capacities (kt/a)

Region    Producer    Capacity
East China        Yangzi Petrochemical Co., Ltd.                         260
                Zhenhai Petrochemical Co., Ltd.                     160
                Jinling Petrochemical Co., Ltd.         130 (suspended)
North China        Qilu Petrochemical Co., Ltd.                          40
Central China    Luoyang Petrochemical Co., Ltd.                      40
Northeast China    Jilin Petrochemical Co., Ltd.                         120
                Liaoyang Chemical Fiber Co., Ltd.                      60
                Dalian Fujia Group Co., Ltd.                        100
South China        CNOOC Huizhou Refining & Chemical Co., Ltd.             80
                Fujian Tenglong Industry Co., Ltd.                    240
                Hainan Refining & Chemical Co., Ltd.                100
Total                                                              1 330

Table 2   New o-xylene capacity in China, 2014 (kt/a)

Region    Producer    Capacity    Time starting production
East China    Shanghai Petrochemical Co., Ltd.     100    2014
            Jiujiang Petrochemical Co., Ltd.     80    
             Starting construction in the first half of 2014
Southwest China    Sichuan Pengzhou Petrochemical Co., Ltd.     
　　　　　　　　　　　　150    First half of 2014
                        Sichuan Refining & Chemical Co., Ltd.     
　　　　　　　　　　　　80    Starting construction in 2016
Northeast China    Huajin Chemical (Group) Co., Ltd.      
               100    Starting construction during 2014-2015
South China    Hainan Petrochemical Co., Ltd.     
　　　　　　80    Starting construction in 2015
            Zhanjiang Kuwait Refining & Chemical Co., Ltd.     
　　　　　　80    Starting construction in the first half of 2014
Total    670    

Table 3  Supply and demand for o-xylene in China, 2011-2013 (k/a, kt)

Year    Capacity    Output    Import volume    Export volume    Apparent consumption    Self-sufficiency rate (%)
2011    1 030    760    602.5    19.000    1 343.5    56.6
2012    1 030    717    698.4    0.0079    1 407.1    50.9
2013    1 330    726    555.3    0.0089    1 281.3    56.7



(2) Self-sufficient rate of o-xylene is still low
The apparent consumption of o-xylene in China increased constantly during 2010-2013, but the growth slowed down. The apparent consumption was 1.40 million tons in 2010, an increase of 4.5% year-on-year. The apparent consumption was 1.43 million tons in 2011, an increase of only 2.1% year-on-year. The apparent consumption reached 1.553 million tons in 2012, an increase of 9.7% year-on-year. Table 3 shows the supply and demand for o-xylene in China during 2011-2013.
The self-sufficient rate of o-xylene in China has remained below 60% for many years. The total import volume was 698 kt in 2012, an increase of 15.8% year-on-year. The import volume was 555 kt in 2013, a drop of 20.5% from the previous year.
India was the major import source of o-xylene to China in 2013, and the import volume accounted for 30.59% of the total. Taiwan and Singapore followed behind, and the amounts imported from them accounted respectively for 19.12% and 12.58% of the total.
The capacity for o-xylene in China increased from 530 kt/a to 1.33 million t/a during 2006-2013. In the same period, the capacity growth of o-xylene is much slower than that of phthalic anhydride. More than half of o-xylene consumption in China relies on imports. China’s o-xylene capacity will increase at least 200 kt/a in 2014. The self-sufficiency rate will therefore increase.

2. Constraints are many and the industry is eager for adjustment

(1) Weak recovery of China’s economy
China’s economy will enter a period of relatively slow growth in the next few years. The economy will likely have various risks such as the rapid shrinkage of external demand, drastic fluctuation of short-term capital mobility, partial deflation of the real estate price bubble and some lawbreaking in local financing platforms.
Unsatisfactory macro environments and worries over the present and the future will inevitably become unfavorable to the chemical market. China will further strengthen infrastructure investment and economic restructuring. The Chinese economy will be stable and improved. Nevertheless, the industry still pins hopes on government policies.
(2) Integration of the o-xylene/phthalic anhydride industrial chain is a must
The outstanding problem in industrial progress in China is overcapacity. The low investment threshold and high profit of phthalic anhydride/DOP sector has stimulated rapid capacity expansion. Upstream raw material capacity has however failed to grow accordingly. Due to the short supply of upstream butanol/octanol and o-xylene, o-xylene-based plasticizers have been constrained by upstream petrochemical producers and importers for many years and have weak pricing power. The lack of communication between related sectors and between upstream and downstream has seriously affected its development. The integration of the industrial chain is therefore an inevitable trend.
(3) The high profit of p-xylene affects the market supply of o-xylene
The price of p-xylene was widely different from the price of o-xylene in 2012 and the maximum price difference reached US$400-500/t. In units that can produce both o-xylene and p-xylene, raw material m-xylene can be used to produce o-xylene and p-xylene at the same time. In usual cases, when the price of p-xylene is more than US$80/t higher than o-xylene, producers will increase the output of p-xylene and reduce the output of o-xylene. The supply of o-xylene will therefore become tense.

3. Short supply will last in near future

As the price of o-xylene is at a high level, some phthalic anhydride producers have started to use the naphthalene process, which has already been phased out due to high energy consumption, unstable product quality and bad environmental impact. Compared with the o-xylene process, the naphthalene process has a cost advantage of RMB3 000/t of phthalic anhydride.
The industrial concentration of China’s o-xylene/phthalic anhydride sector is increasing. Developing new application sectors with greater potential in the context of the existing consumption structure should be a priority for downstream enterprises instead of just heedlessly expanding capacity. Environment-friendly plasticizers and other new plasticizers will seize more market shares now held by traditional plasticizers. In today’s China, 49% of total phthalic anhydride consumption is used to produce traditional plasticizers. Therefore, the possible shrinkage of the phthalic anhydride market in the long run would affect the o-xylene sector. Suggestions to the sector are as follows:
(1) Expand capacity, improve effect and enhance market competitiveness: The capacity for o-xylene should be actively expanded. The capacity of new units should at least be over 400 kt/a so as to enhance market competitiveness.
(2) Conduct upstream/downstream coordination and cooperation and stabilize market supply/demand. The future development of the o-xylene/phthalic anhydride sector will rely on R&D and technology innovation. At the same time, upstream/downstream coordination should also be emphasized, market should be stabilized, operating rate should be controlled and rational regulation should be applied to regional market resources so as to avoid an undue imbalance of the market supply/demand.
(3) Strengthen communication between related sectors and closely follow market trends: The role of the industry association should be brought into full play; coordination and communication between related sectors should be strengthened and o-xylene market trends should be closely followed. Efforts should be made to improve price bargaining ability, control rational price difference between o-xylene and phthalic anhydride, regulate import volume and take market emergency measures. Client structures should be optimized, core users should be firmly grasped and marketing tactics should be tailored to the sales region, product quality and new product development.