BDO Profits to Be Meager in China
Year:2014 ISSUE:22
COLUMN:ORGANICS
Click:210    DateTime:Dec.24,2014
BDO Profits to Be Meager in China

By Zhang Yue, China National Chemical Information Center

1,4-butanediol (BDO) is a colorless oily liquid, flammable, hygroscopic, miscible with water, soluble in methanol, ethanol and acetone, and slightly soluble in ethyl ether at room temperature. It is an organic raw material with extensive applications, mainly used to produce tetrahydrofuran (THF), polybutylene terephthalate (PBT), gama-butyrolactone (GBL), polyurethane (PU), etc.

China hosts 46% of the world’s BDO capacity

In 2013, the global capacity to make BDO reached 2.78 million t/a, the output was around 1.61 million tons and the overall operating rate was 58%. The Asia-Pacific region became the world’s main BDO producing region, with China’s capacity reaching 1.28 million t/a in 2013, or 46% of the world total.
Major BDO producers in the world include BASF, Dairen Chemical Corporation of Taiwan province, Lyondell Basell, Ashland of the United States and Xinjiang Markor Chemical Co., Ltd., and the combined capacity of the top five companies accounts for 44% of the global total. They are listed in table 1.
In 2013, the global consumption of BDO was around 1.61 million tons; major uses include making THF, GBL PU and the engineering plastic PBT. The THF-polytetramethylene ether glycol (PTMEG)-spandex industrial chain consumes around 51% of the total.

Table 1   The world’s top 5 BDO producers in 2013 (kt/a)

Producer    Plant location    Capacity
BASF    Germany, the United States, Malaysia and Japan    417
Dairen Chemical Corporation of Taiwan province    Taiwan, Jiangsu province of China    296
Lyondell Basell    The Netherlands and the United States    180
Ashland of the United States    The United States and Germany    163
Xinjiang Markor Chemical Co., Ltd.    China    160


Table 2   Major BDO producers in China in 2013 (kt/a)

Producer    Location    Capacity     Production process
Xinjiang Markor Chemical Co., Ltd.    Northwest China    160    Reppe process??
Shanxi Sanwei Group Co., Ltd.    North China    150    Reppe process/ maleic anhydride process??
Nanjing Bluestar New Chemical Materials Co., Ltd.    East China    110    Maleic anhydride process?
Hemei Company of Henan Coal Chemical Group    Central and South China    100    Reppe process?
Sinopec Yizheng Chemical Fiber Co., Ltd.    East China    100    Maleic anhydride process?
Dairen Chemical?(Jiangsu) Co., Ltd.    East China    96    Allyl alcohol process
Henan?Kaixiang?Chemical Co., Ltd.    Central and South China    90    Reppe process?
Sichuan Tianhua?Co., Ltd.    Southwest China    85    Reppe process?
Dongying Shengli?Zhongya Chemical Co., Ltd.    East China    68    Maleic anhydride process?
Zhongjia?Huachen Energy Chemical Co., Ltd.?    East China    55    Maleic anhydride process?
Others        265    
Total        1 279    


Table 3   China’s BDO Projects Being Built or Planned for Construction (kt/a)

Producer    Capacity     Startup time (expected)
Taiwan Changchun Group    150    2014
Xinjiang Tianye (Group) Co., Ltd.    170    2014
Inner Mongolia Dongyuan Scien-Tech Co., Ltd.    308    April 2014 (the first phase 100 kt/a )
China Guodian Younglight Energy Chemical Group Co., Ltd.    200    August 2014 (the first phase 100 kt/a )
Shaanxi Hancheng Tiangong Metallurgy Co., Ltd.     60    2014
Chongqing Chiyuan Chemical Co., Ltd. (belongs to Chongqing Jianfeng Chemical Co., Ltd.)    60    2014
Zhejiang Jiangning Chemical?Co., Ltd.    30    2014
Xinjiang Guotai Xinhua Mining Co., Ltd.    200    2014/2015
Shaanxi Ronghe Chemical Group Co., Ltd.    120    2015
Xinjiang Markor Chemical Co., Ltd.    100    2015
Sinopec Sichuan Vinylon Works    200    December 2015
Inner Mongolia Zhengxiangbaiqi Huatong Investment Co., Ltd.     300    Being planned for construction
Inner Mongolia Yidong Investment Group Co., Ltd.    200    Being planned for construction
Shaanxi Hengyuan Coal & Electricity Group Co., Ltd.    100    Being planned for construction
Nanchong Heyou Chemical Co., Ltd.    130    Prevliminary preparation
Shaanxi Yanchang Petroleum (Group) Corporation    100    
Shaanxi Shanhua Group Bidiou Chemical Co., Ltd.???    100    
Shanxi Sanwei Group Co., Ltd. (the fourth phase)    100    
Total    2 628    


Capacity expanded rapidly in China

China started R&D for BDO in the late 1960s with small production scale and the Reppe process. In 2000, Shandong Shengli Oilfield Petrochemical Co., Ltd. introduced the maleic anhydride esterification and hydrogenation technology, from Davy Mackee of the United States, and constructed and started up China’s first 10-thousand-ton BDO unit. China’s BDO sector developed steadily afterward. Due to a gradual decrease of investment and the high technical threshold of market entry, China’s BDO capacity expanded rapidly during 2009-2013, especially in 2013, when the total grew by over 70% to 1.28 million t/a, the output reached 470 kt and the overall operating rate was 37%.
China’s major production processes for BDO include the Reppe method and the maleic anhydride method. The Reppe method accounts for 65% of the total capacity, maleic anhydride method occupies 32% and allyl alcohol method accounts for the remaining 3%. The Reppe method features mature process, easy availability of raw materials, stable product quality, and lower production cost. However, it generates a large amount of calcium carbide slag, which is difficult to treat and causes serious environmental pollution, and it requires a big capital investment. The maleic anhydride method features high product quality, low water consumption, low investment, produces valuable byproducts – THF and GBL – with adjustable proportions, discharge of waste gas, waste water and industrial residue are all low, and little environmental pressure is involved. However, because the prices of the raw materials – maleic anhydride and benzene – are influenced by oil prices, worries about cost are greater.
In 2013, major BDO producers in China included Xinjiang Markor Chemical Co., Ltd., Shanxi Sanwei Group Co., Ltd., Nanjing Bluestar New Chemical Materials Co., Ltd., etc.
China’s BDO capacity is mainly distributed in East China (28%) and Central China (26%), and Northwest China hosts 17%. Still more BDO projects will be constructed in China, and the sector is sure to face overcapacity. According to public reports, the total capacity of BDO projects being built or planned for construction is 2.63 million t/a, being nearly double that added in 2013. The capacity newly added in 2014 alone will amount to 670 kt, up 52% year-on-year.
The main reason for the increase in new projects in China during 2014-2015 is that the investment and technical threshold of BDO have gradually decreased. In 2013, due to the pressure of cost, production was commonly suspended in BDO units using maleic anhydride, and there were more new and expanded BDO units using the Reppe process. Scheduled startup of projects for which construction has already been started has typically been postponed, and there is more serious regional imbalance in the domestic BDO market.

The market appears sluggish

In 2013, China’s total consumption of BDO reached 480 kt, mainly being used in the production of THF, PU, GBL and PBT, with THF/PTMEG being most prominent at around 44% of total consumption, and PU (21%), GBL (18%) and PBT (14%) ranking behind.
In BDO downstream sectors, only THF/PTMEG had a higher profit, and the operating rates of THF/PTMEG units were higher. Other BDO downstream sectors were generally losing money, and their operating rates were reduced drastically. It is expected that THF/PTMEG will still be a key driver of the growth of demand for BDO.
In the first half of 2014, China’s market price of BDO fell substantially. The price was in a stalemate in the first quarter and decreased sharply in the second quarter. In the first 7 months of 2014, the average market price was RMB12 530/t, down 13% compared with RMB14 412/t in the same period of 2013, and down 23% compared with RMB16 191/t in the same period of 2012. The average market price was RMB13 810/t in January 2014, and plummeted 31% to RMB9 533/t in July 2014.
Under the pressure of cost, the BDO plants using maleic anhydride suspended production to avoid the losses, and new units were not put into production on schedule. Since 2012, the cost pressure of units using maleic anhydride process has increased significantly, and Enterprises like Shanxi Sanwei Group Co., Ltd., Nanjing Bluestar New Chemical Materials Co., Ltd. and Dongying Shengli Zhongya Chemical Co., Ltd. have suspended production in their BDO units using the maleic anhydride process. After conducting trial production for a short period in 2013, Zhongjia Huachen Energy Chemical Co., Ltd. and Sinopec Yizheng Chemical Fiber Co., Ltd. suspended production in their respective new BDO units using the maleic anhydride process.
The profit of units using the Reppe process gradually declined turning to losses by July of this year. Due to the relatively low cost of raw materials, the units using the Reppe process had a certain cost advantage, but because of the constant slide of BDO prices and slight growth of raw material prices, profit margins were greatly reduced.
China’s BDO market has entered a growth period, and the domestic BDO sector has shifted from short supply and high profits to oversupply and meager profits. There are more new entrants, the production units tend to be larger in scale, and the competition among homogeneous enterprises is increasingly fiercely. The growth of downstream demand is slower than that of capacity, the newly-added capacity cannot be digested, and operating rates have been decreased greatly. Therefore, enterprises that are preparing to get involved in BDO production should be particularly cautious.