Butanol/Octanol Sector to Seek Reform in View of Meager Profits

By Yu Guoliang, Sinopec Qilu Petrochemical Co., Ltd.

More capacity commissioned; output grows further; risks in market increase

The global butanol/octanol capacity increased further in 2014, with the expansion concentrated mainly in Asia. By the end of 2014, Asia’s n-butanol capacity had reached 2.78 million t/a, 51% of the world total. The growth of octanol capacity slowed down slightly, and by the end of 2014, Asia’s octanol capacity was 3.478 million t/a, 61% of the world total.
With the completion of MTO projects by PetroChina Sichuan Petrochemical Co., Ltd. and Wison Group Nanjing in 2014, the capacity of n-butanol in China increased further to 1.74 million t/a (including the capacity using the biological process). The market monopoly of PetroChina and Sinopec changed. In 2014, 21% of China’s n-butanol capacity was held by Sinopec and 26% by PetroChina. To be more specific, Sinopec BASF-YPC Co., Ltd. is still the biggest producer. Second-echelon producers include PetroChina Sichuan Petrochemical Co., Ltd., PetroChina Jilin Petrochemical Co., Ltd., Tianjin Bohai Chemical Industry Group Co., Ltd. and Shandong Luxi Chemical Co., Ltd. Sources of propylene within the two oil giants’ holdings are still mainly integrated refining and chemical units. Butanol/octanol units operated by Tianjin Bohai Chemical Industry Group Co., Ltd. and Wison Group Nanjing are respectively based on PDH and MTO. Butanol/octanol units therefore have different raw material sources.
With the completion of downstream butanol/octanol units matched to MTO units in PetroChina Sichuan Petrochemical Co., Ltd. and Wison Group Nanjing, China’s octanol capacity reached 1.97 million t/a in 2014. In the development of the octanol sector, after the adjustment made in Yangzi Petrochemical Co., Ltd. in 2011, Sinopec partially quit the octanol business to turn to n-butanol production, and its octanol capacity did not increase in the ensuing four years. PetroChina still coordinates its development of butanol and octanol, continuing to increase its octanol capacity in recent years. The proportion of octanol capacity held by these two oil giants is shrinking constantly – state-owned enterprises are generally withdrawing from this sector while private and publicly traded enterprises are making advances. More specifically, Tianjin Bohai Chemical Industry Group Co., Ltd. has become the biggest octanol producer in China. Sinopec Qilu Petrochemical Co., Ltd. is second. Shandong Lihuayi Group Co., Ltd, Shandong Jianlan Chemical Co., Ltd., PetroChina Daqing Petrochemical Co., Ltd., Wison Group Nanjing and PetroChina Jilin Petrochemical Co., Ltd. follow close behind.
More butanol/octanol construction projects are underway in China today. Two new large butanol/octanol units will be on stream by the end of 2015 – a 250 kt/a unit of Sinopec Anqing Petrochemical Co., Ltd. and a 225 kt/a unit of Shandong Yantai Wanhua Group. Table 1 shows China’s butanol/octanol capacity in recent years.
In recent years, there has been a trend of upstream-integrated development in the construction of butanol/octanol units, among new market entrants. Builders of PDH projects and MTO projects have started to build or acquire matched butanol/octanol units downstream. This trend will become more prominent in the future. Competition in the sector will take on a new character in accord with the diversified raw material sources.
Jiangsu Huachang Chemical Co., Ltd.’s new octanol unit started production smoothly in the first half of 2015, bringing China’s octanol capacity to 2.05 million t/a. Output for the first half of 2015 was 741.48 kt; that was 90.82 kt (13.96%) more than in the same period of 2014.

The supply/demand balance is disrupted, import-dependence is down

China’s apparent consumption of n-butanol in 2014 was 1.34 million tons, an increase of 7% over the previous year. Output was 1.15 million tons, an increase of 37%. The net import volume was 191.3 kt and import-dependence was down to 13.92%. The apparent consumption of octanol in China was 1.518 million tons in 2014, an increase of 12% over the previous year. Output was 1.378 million tons, an increase of 19%. The net import volume was 139 kt and import-dependence was down to 12.74%. Figures 1 and 2 show the total output and sales volume of butanol/octanol in China in recent years.
The construction of n-butanol capacity in China is ongoing; capacity is expected to reach 2.35-2.60 million t/a in 2020. Octanol capacity will reach 2.25-2.68 million t/a at that time. Judging from a forecast of demand and plans for capacity expansion in China, the domestic butanol/octanol market will be oversupplied in 2020. With ongoing import, earlier aggressive operating rates of China’s butanol/octanol units can hardly be restored and are expected to be in the range of 60%-75%.

Gross profits fell sharply in 2015

(1) The new level of butanol/octanol demand shapes the development of the sector
As the butyl acrylate sector, downstream of butanol production, has reliably turned sound profits, large-scale butyl acrylate capacity expansion appeared in 2014, and a considerable proportion of these units are matched to butanol units. The average annual growth of n-butanol consumption in China reached 8.0% for the last five years, and annual consumption is expected to be 1.98 million tons in 2020. In contrast, the dioctyl phthalate (DOP) sector, downstream of octanol production, bears a low profit margin, and there is little enthusiasm for investing in new units. The growth of octanol demand will slow down further to 3%-4% in the future, and consumption will be 1.80 million tons in 2020.
(2) Gross profits will remain meager
Overall, profits in the octanol market were okay in the first half of 2015. At the beginning of January, propylene prices were low, with the highest gross profit from making octanol at around RMB1 000/t. In early March prices climbed to a peak, and gross profits went as high as RMB1 100/t. In May, the average market price of octanol was quite high and the gross profits stayed over RMB600/t. In early August, due to a decline in octanol prices and high propylene octanol prices, producers suffered losses. After that however, octanol producers were able to increase prices while enjoying gross profits of around RMB500/t, due to support from stable propylene prices, tightening market supply and active promotion from the plasticizer market. Compared with n-butanol producers, who still suffer considerable losses today, octanol producers have some consolation. It is expected that gross profits in the butanol/octanol market will remain meager for a considerable period of time.
(3) Competitiveness declines for units matched to MTO sources of raw materials
Owing to the drastic reduction of raw material costs after the latest round of crude oil price cuts, the earlier pressure of reduced gross profits in ethylene cracking units and PDH units has been greatly eased. Changes in the competition mode of propylene makers upstream surely impact butanol/octanol units significantly. The competitiveness of downstream butanol/octanol units owned by integrated refining/chemical enterprises and PDH enterprises is enhanced, whereas competitiveness of butanol/octanol units matched with MTO plants has slid dramatically. Owing to their complete industrial chain and strong risk-withstanding ability, the butanol/octanol units of integrated refining/chemical enterprises will become still more competitive in the future.

New factors influence prices; competition between domestic goods is increasingly intense

(1) Prices lack support from supply/demand
Due to the expasion of capacity and the slowing growth of consumption, the market price of n-butanol slid drastically in 2014. The recent drop of crude oil prices led to a further reduction of n-butanol prices. Figure 3 shows the price trend of butanol/octanol in China in recent years.
The price of octanol in China dipped below RMB9 200/t in 2014. At the beginning of 2015, due to the drastic drop of crude oil prices, the price of octanol was already down to RMB8 100-8 200/t. The mainstream reference negotiated market price (taken by clients themselves) in Jiangsu today is RMB5 150/t for n-butanol and RMB6 250/t for octanol.
As few butanol/octanol units in coastal areas have matched MTO and PDH units, butanol/octanol prices still mainly follow the selling price of crude oil there. With the growing number of PDH and MTO plants, however, changes in butanol/octanol prices will have a new influence.
(2) Competition between domestic goods is increasingly intense
In this time of gradually displacing imports by domestic goods, competition between domestic goods is made more intense. The main manifestation is that shrinkage of the market for low-price goods affects long-term contracts more strongly. Coping with oversupply, major butanol/octanol producers have gradually formed a market tempo of slow increase but rapid reduction so as to maintain long-term contract systems of their own and safeguard interests of core clients, showing their determination to defend long-term contracts.
A subtle, weak balance is maintained between butanol/octanol and their downstream products today. It is not hard to discover from the average profit of the butanol/octanol sector that n-butanol is slightly stronger than butyl acrylate, whereas octanol is a little weaker than DOP. Due to the successive drops of crude oil prices, the overall atmosphere for trade in chemicals is extremely flat today. The price of propylene, upstream, is fluctuating, and the price of DOP, downstream, is also unable to recover from the setback. It is expected that space for a further drop of octanol prices will still exist in the future, but the reduction will be limited.

Table 1   China’s butanol/octanol capacity in 2010-2014  (kt/a)


Year    2010    2011    2012    2013    2014
n-Butanol    450    650    810    1 330    1 740
Octanol    620    820    1 100    1 630    1 970




Reform of the butane/octanol sector will be tough

(1) Propylene market is quite weak
China’s propylene capacity was already close to 27.0 million t/a in the first half of 2015, an increase of 5.6% over the same period of 2014. According to incomplete statistics, the capacity of PDH units to be added before 2020 will be over 10.0 million t/a. New propylene output will also be co-produced in refining and cracking units. If these units are completed and put on stream by 2020, capacity will reach 45.0 million t/a.
China consumed 22.3 million tons of propylene in 2014, an increase of 9.85% over the previous year. In 2014, the proportion of propylene consumed in making butanol/octanol was around 9%, surpassed only by polypropylene (63%) and propylene oxide (10%). Shandong is a major butanol-octanol producing region. Around 25% of all the propylene consumed in Shandong in 2014 went into making butanol/octanol. Other prominent uses were polypropylene and propylene oxide.
The propylene demand from makers of downstream derivatives was around 29.6 million tons in 2015. The average annual growth of demand was 7.6% during 2012-2015. It is expected that the equivalent demand of propylene will be 38.0 million tons in 2020 and propylene makers will be overcapacity by that time.
(2) Expansion of diisononyl phthalate (DINP) capacity is restricted by the nonanol supply
China’s capacity to make plasticizer DINP is still around 930 kt/a, but operating rates have picked up. As China’s entire supply of raw material iso-nonanol (INA) is imported, buying it here can be difficult. INA used in China comes mainly from foreign enterprises such as ExxonMobil, Degussa and Kyowa Hakko Kogyo. The number of major DINP producers in China is relatively stable, and capacity growth is also quite slow. It is expected that China’s DINP capacity will keep expanding, but not by much.
(3) Dioctyl terephthalate (DOTP) capacity is in a period of rapid expansion
DOTP capacity in China has reached 1.30 million t/a. There are around 45 producers, but few are large. With increased efforts to protect the environment, the recognition of DOTP in downstream sectors is enhanced, and demand is increasing to some extent.
DOTP business units have always been well above the breakeven line in recent years, making fat profits. DOP requires phthalic anhydride as raw material, whereas DOTP requires PTA as raw material. As the price of PTA has been much lower than the price of phthalic anhydride in recent years, profits from DOTP production have always been high.
With the growing awareness of environmental protection in many countries, more stringent plasticizer requirements have been raised for plastic products such as medicine packages, food packages, daily articles and toys. Therefore, environment-friendly plasticizers have new development opportunities. As DOTP contains no phthalates, it is not included among the 16 phthalate-containing plasticizers restricted in the EU and some other markets. DOTP is an excellent environment-friendly plasticizer with bright development prospects. It is expected that the market for DOTP will keep expanding rapidly during 2015-2017.
(4) The progress of e-commerce is accelerating
Eighty to eighty five percent of China’s butanol/octanol output today is covered by long-term contracts between downstream sectors and butanol/octanol producers, but the rapid development trend of internet sales can never be neglected. Shandong Luxi Chemical Co., Ltd. and Tianjin Bohua Yongli Chemical Industry Co., Ltd. hold the largest butanol/octanol capacities, have made significant steps toward e-commerce.
(5) Further capital investments should be judicious
China’s butanol/octanol market is tending toward oversupply in the near future. Operating rates will soon be reduced, later to be restored and kept around 70%. Construction of new capacity will be less certain.
As for n-butanol, consumption and the displacement of imports in the market will both keep expanding modestly, so n-butanol still has some development space. In the long run, n-butanol supply and demand in China will be balanced and self-sufficient.
Restricted by discouraging DOP consumption, octanol consumption will still grow modestly in the near future, but the development prospect remains grim. Even if consumption does not shrink, annual growth will fall off drastically to around 3%. Capacity construction will be much faster than market growth. So competition will be fierce, and it will be increasingly likely that some units will be permanently shut down. The possibility of octanol production being reshuffled will be extremely increased. Risks of investment in new capacity will be higher, and the possibility of projects being cancelled or postponed will be greater.
The sector should make every effort to improve the downstream product structure and develop toward specialty plasticizers with high added value and high technical content. Moreover, great attention should be paid to early-stage research into plasticizers based on nonanol and decanol, with the aim to replace DOP.