BDO: Declining Profits & Slowing Demand Growth
Year:2017 ISSUE:2
COLUMN:ORGANICS
Click:309    DateTime:Mar.20,2017
BDO: Declining Profits & Slowing Demand Growth

By Gao Fugeng, China National Chemical Information Centre

Excessive capacity expansion

In 2007, China’s capacity to make 1,4-butanediol (BDO) was only 150 kt/a, and the nation’s dependence on imported BDO reached 50%. But capacity expanded rapidly during 2007-2016, with an average annual growth of 31.7%, and it is now beginning to show initial signs of surplus. Expansion slowed down during 2015-2016, and grew by 13% in 2015. It was expected to reach 2.35 million t/a in 2016, up 260 kt/a or 12% year-on-year. China’s expansion of BDO capacity during 2007-2016 is listed in Figure 1.
Serious oversupply appeared in the domestic BDO market during 2015-2016, and the average operating rate was only around 60%. Due to an inversion between the cost and sales price, since 2013, all BDO units using the maleic anhydride process have been mothballed. The current major BDO producers are listed in Table 1.
In 2016, the combined BDO capacity of China’s top ten BDO producers was 1.51 million t/a, accounting for 64% of the domestic total. The combined capacity of the top five was 1.02 million t/a, or 43% of total. The sector has become significantly concentrated, the scale of production units is large, and the single-set production scale of BDO units now exceeds 100 kt/a.

Slowdown of consumption growth

In 2016, China’ uses of BDO were in the manufacture of THF (tetrahydrofuran)/PTMEG (polytetramethylene ether glycol), PBT (polybutylene terephthalate), GBL (gama-butyrolactone), and PU (polyurethane slurry and shoe sole fluids). The proportions of BDO consumed in THF/PTMEG, PBT, GBL, PU and other sectors were 39%, 28%, 20%, 11% and 2% respectively. Of which THF/PTMEG is the sector with the largest proportion, and mainly applies BDO in making textile spandex. However, the overall market is weak. Most PBT plants downstream suffer losses, affected by the slackness in terminal manufacturing industries like textiles and automobiles caused by the slowdown of economic growth. The operating rate of the PBT sector is around 50%-60%, and the growth of BDO consumption in making PBT is limited. Due to GBL’s smaller proportion, it does not have a driving role for BDO. The market growth space of polyurethane synthetic leather slurry and shoe sole fluids is also not favorable.

Stable import and
growing exports

In recent years, China’s import volume of BDO has basically remained at around 200 kt/a. In 2015, China imported around 182 kt of dibasic alcohol like BDO, down 12% YoY. The import volume in the first nine months of 2016 was basically the same as that in the same period of 2015. It is expected that the 2016 import volume will be found to have been around 180 kt.
In the first nine months of 2016, China’s major import sources for BDO were South Korea, Taiwan province and the United States, together accounting for 72% of the total volume imported. The import volumes from South Korea, Taiwan province and the United States reached 39 kt, 37 kt and 25 kt, respectively, accounting for 27%, 26% and 18% of the total volume imported. Except for a slight increase of average import price from the United States, the average import prices from other regions decreased.
In the first nine months of 2016, China exported 10.1 kt of BDO, up 17% YoY. Of that, the export volume in the first five months was basically the same as that in the same period of 2015. In the second half of 2016, especially in August, the export volume increased significantly, up 97% compared with that in the previous month and up 113% YoY.
In the first nine months of 2016, China’s major export destinations of BDO included South Korea, Germany, Japan and India, etc. Of these, the amounts exported to South Korea and Germany reached 4 220 tons and 1 086 tons, respectively, up 104% and 33% YoY.
China’s exporters of BDO mainly included a few producers such as Xinjiang Markor Chemical Co., Ltd., Shanxi Sanwei Group Co., Ltd., Xinjiang Tianye (Group) Co., Ltd. and Henan Kaixiang Chemical Co., Ltd. Xinjiang Markor Chemical Co., Ltd. ranked first thanks to international cooperation with companies such as BASF. In 2015, Xinjiang Markor Chemical Co., Ltd. together with HUPAC of Switzerland established a "New European Land Silk Road" (Xinjiang - Europe - Mediterranean), so BDO products can be transported directly from Xinjiang to Europe by rail, greatly saving costs and time. Xinjiang Markor Chemical Co., Ltd. has exported 4 600 tons of BDO through the "New European Land Route", of which the export volume in the first nine months of 2016 reached 3 537 tons, accounting for 35% of the total domestic export volume.

Table 1    Major BDO producers in China, 2016

Producer    Location    Capacity (kt/a)    Production process
Xinjiang Markor Chemical Co., Ltd.    Northwest China    260    Reppe process
Xinjiang Tianye (Group) Co., Ltd.    Northwest China    210    Reppe process
Sinopec Great Wall Energy and Chemical (Ningxia) Co., Ltd.    Northwest China    200    Reppe process
Xinjiang Guotai Xinhua Mining Co., Ltd.    Northwest China    200    Reppe process
Taiwan Changchun Group (Panjin)    Northeast China    150    Allyl alcohol process
Shaanxi Shanhua Group Bidiou Chemical Co., Ltd.    Northwest China    100    Reppe process
Xinjiang Blue Ridge Tunhe Chemical Industry Co., Ltd.    Northwest China    100    Reppe process
Hemei Company of Henan Coal Chemical Group    Central and South China    100    Reppe process
Inner Mongolia Dongyuan Scien-Tech Co., Ltd.    North China     100    Reppe process
Dairen Chemical?(Jiangsu) Co., Ltd.    East China    90    Allyl alcohol process
Henan?Kaixiang?Chemical Co., Ltd.    Central and South China    90    Reppe process
Others        750    
Total        2 350    


Constant price reduction

Since 2011, domestic market prices of BDO have decreased drastically from RMB20 000-25 000/t in 2011 to RMB7 700-8 800/t in 2016, down nearly 70%. In the first half of 2016, the prices of BDO fluctuated at a low level, averaging RMB7 890/t. Market prices climbed in July, reached RMB8 400-8 900/t in mid and late September, hardly moving in October. In November, prices once again rose considerably, reaching RMB8 800-9 300/t, up by around RMB400/t.
The price climb in the second half of 2016 was mainly due to the following reasons: (1) Driven by the price rise of raw materials, the prices of power coal, coking coal and coke increased constantly in the second half, the raw material cost of BDO enterprises using the coal-to-calcium carbide process and the coal-to-methanol process climbed, and the intention for raising BDO prices increased somewhat. (2) Some BDO producers shut units down for overhaul or operated at low rates, so the market supply was tight. (3) Rail transport in Xinjiang was blocked, resulting in a slightly tight supply of spot goods in East China.
Under the influence of multiple factors, the quoted price of BDO has increased constantly; however, due to the downturn of the overall market demand, the growth will not be too large.