Solve the Contradiction of BDO Oversupply
Year:2018 ISSUE:16
COLUMN:ORGANICS
Click:295    DateTime:Aug.21,2018


By Gu Chaoying


Technical breakthrough aggravates capacity surplus

BDO plants in China were almost in a state of long-time loss in the whole year of 2016 and the operating rate made an evident drop. The new capacity was 160 kt/a in 2016, but the actual output only made an increase of around 50 kt. No remarkable improvements were made in 2017. The operating rate of some BDO units was only 50-60%. New projects also kept flowing into the market. New projects in Xinjiang Guotai Xinhua Chemical Co., Ltd. and Inner Mongolia Dongyuan Technology Co., Ltd., in particular, started production during 2017-2018. The status of oversupply was therefore aggravated. Table 1 shows partial new BDO capacities in China during 2017-2020. BDO units in some plants are still idle today. There are however still plans for expanding BDO capacities or constructing BDO projects in next 3 years. The profit margin in the BDO sector will be very limited.

Table 1   Partial new BDO capacities in China during 2017-2020

CompanyCapacity (kt/a)Time starting   productionRemark
Ningxia Yinglite Chemicals Co., Ltd.1002017The company has   made capacity expansion. The total capacity reaches 200 kt/a.
Hancheng Black Cat Co., Ltd.1602017Production was   started in 2017.
Xinjiang Tianye (Group) Co., Ltd.602017The total   capacity reaches 210 kt/a after the capacity expansion made in 2017.
Shaanxi Hancheng Tiangong Metallurgical Co., Ltd.602017Production was   started at the end of 2017.
Xinjiang Guotai Xinhua Mining Co., Ltd. 2002017Production was   started in November 2017.
Sinopec Sichuan Vinylon Works200Planned for   constructionThe specific   time for starting production is not fixed.
Inner Mongolia Dongyuan Technology Co., Ltd.1002018The second   phase will start production in 2018.
Inner Mongolia Dongyuan Technology Co., Ltd.1002020The third phase   will start production in 2020. 

   With the lift of BDO technology blockage launched by foreign countries to China, many overseas BDO technology suppliers have licensed 104 kt/a Reppe-process BDO technology and matched 46 kt/a PTMEG process. The expansion of the single-unit BDO scale in China is promoted. Practices have also been made in China for long years. The technical threshold of Reppe-process BDO is therefore totally removed. With the rapid expansion of the BDO sector, the capacity of BDO in China will have serious surplus after 2018 and competition will be aggravated. A large number of BDO units are still being constructed or planned for construction. It is expected that BDO will still have oversupply in China for a considerable period of time. The road of industrial integration and de-capacity is long and tedious. In the course of supply-side reform, it is imminent for major BDO producers in China to carry out reform and transformation. Inhibiting unduly capacity expansion, stabilizing domestic demand, increasing investment in high-grade, high-precision and sophisticated technologies and expanding export will become major directions for BDO producers in future.


The downstream PTMEG consumption has potentials to tap

   Based on demand analyses, BDO has three major downstream products in China, namely tetrahydrofuran (THF), γ-butyrolactone (GBL) and polybutylene terephthalate (PBT). THF is a byproduct of PBT. The major downstream product of THF is polytetramethylene ether glycol (PTMEG). PTMEG is used to produce polyurethane fiber. In China 88-90% of PTMEG will still be used in the production of polyurethane fiber in 2018. The capacity of polyurethane fiber in China has made a constant increase in recent years. The effective new capacity of polyurethane fiber was 20 kt/a in 2017. The operating rate is usually maintained at a high level of 80-90%.
   Although there was no new capacity of PTMEG in 2015, new units completed in 2014 started production during 2015-2016. The capacity of PTMEG in China had a wave of explosion in 2016. The 50 kt/a unit in BASF and the 46 kt/a unit in Xinjiang Blue Ridge Tunhe Chemical Industry Co., Ltd. were completed and put on stream in the year. The total capacity of PTMEG in China was close to 700 kt/a in 2016. Despite the capacity surplus of PTMEG in 2017, the output growth of polyurethane fiber promoted the demand increase of PTMEG and its market price made a sustained pickup. As a result, quite a few PTMEG units restarted production and even increased their operating rate. The situation in 2018 is still the same. Boosted by the market of polyurethane fiber, the operating rate of PTMEG units will go further up. The speed for the capacity release and capacity expansion of PTMEG in China already made an evident reduction during 2017-2018.
   Globally, the biggest consumption market of PTMEG was still polyurethane fiber during 2017-2018 and the consumption in the sector accounted for around 49% of the total. Polyurethane elastomer came next and the consumption proportion was around 35%. Ester/ether copolymerized elastomer was the third and the consumption proportion was around 15%. In China, however, PTMEG is mainly used in the production of polyurethane fiber and polyurethane elastomer. It is basically not used in ester/ether copolymerized elastomer. There is therefore still a space for further expansion.

Export expansion + industrial chain extension should be conducted to reduce pressure

   Viewed from the future demand strategy in China, as readjustments to downstream polyurethane slurry and resin are still under way the elimination of capacities with high pollution and outdated technology will be accelerated. New environment-friendly and high-end products such as thermoplastic polyurethane (TPU) will hopefully increase their production. The PTMEG/THF sector remains to be the biggest consumption sector of BDO. The polyurethane sector comes next. The output growth of PBT was accelerated or maintained at 8-10% during 2017-2018. The demand of BDO in polyurethane slurry already had a drastic downslide in 2016. The downstream and even terminal demand growth will be lower than the capacity growth in some periods of time in future. The BDO sector will therefore still be faced with competition and elimination. BDO producers urgently need to make the expansion of export or the rational downstream extension of industrial chain to reduce pressure and gradually ease oversupply in the domestic market.