By Xu Jizhang, CNCIC
C9 petroleum resin can be divided into thermal polymerized petroleum resin, cold polymerized petroleum resin, C5/C9 copolymer petroleum resin, and hydrogenated petroleum resin. Thermal polymerized petroleum resin has a low softening point and is mainly used in adhesives and rubber processing industries. Cold polymerized petroleum resin has a relatively high softening point and is mainly applied in coatings, adhesives and ink fields. C5/C9 copolymer petroleum resin also displays a relatively high softening point and initial viscosity and is widely used in coatings, rubber processing, adhesives, and inks. Hydrogenated petroleum resin expands its application into the field of high-end adhesives by thermal or cold polymerization in order to improve its weather resistance and adhesion.
Fast capacity expansion, slowing demand growth
China started late in the research and production of petroleum resin products but has achieved rapid development in the sector. During 2011-2018, domestic C9 petroleum resin capacity increased from 450 kt/a to 560 kt/a, with a compound annual growth rate (CAGR) of around 3.2%. However, during 2014-2016, the capacity decreased as some producers withdrew from the market given the overall bearishness of the industry. After 2017, rallying crude oil values led to a rapid growth in domestic C9 petroleum resin capacity and output. During 2016-2018, the average growth rate of domestic C9 petroleum resin capacity reached 21.4%. There were around 30 C9 petroleum resin producers in China in 2018, with capacities totaling 560 kt/a, combined output at 350 kt, and an average plant run rate at around 63%. The industry is currently challenged by significant surpluses.
Due to a restricted feedstock supply, domestic C9 petroleum resin production is mainly located around ethylene crackers. C9 petroleum resin capacities are concentrated in the eastern part of China, mainly east China, accounting for above 50% of the domestic total. Northeast China, north China and central China have a similar amount of production capacity, each taking a share of around 13%, with capacities of 75-80 kt/a, respectively. In recent years, the industry concentration level has been improved to some extent, as leading enterprises, including Zhejiang Henghe and Shandong Qilong, have been expanding capacities, while some small-scale companies withdrew from the market due to lack of competitiveness. Five major Chinese producers together covered 54% of the domestic total before 2018.
On the demand side, the downstream application areas of C9 petroleum resin mainly include coatings, rubber processing, and adhesives. The growth rate of C9 petroleum resin consumption is generally affected by GDP growth. In 2019, the coating industry will be a major driver behind the demand increase of C9 petroleum resin, and the growth will be largely flat with China’s GDP growth (at around 6.2%). In addition, China’s slowing economy, especially the weakness in the housing, automobile and electronics sectors, will dampen demand for rubber production and adhesives, and this will slow down the increase of C9 petroleum resin demand in these fields.
Rapid increases in exports, imports decline
China’s petroleum resin exports have been rising since 2011, with the average annual growth rate at around 15%. China exported 219 kt of petroleum resin in 2018, up by 15.4% year on year. Meanwhile, petroleum resin imports showed a different trend. During 2011-2014, the import volume was largely stable, but kept falling after 2014. China imported 62 kt of petroleum resin in 2018, up by 4.6% year on year but slumping by 32.6% from the peak set in 2014 at 92 kt.
Changes in China’s petroleum resin imports and exports are mainly driven by the changes in the domestic industry pattern and products structure. Of the petroleum resin exports from China, low-end C5/C9 products account for around 85%. Rapid increases in exports somewhat ease the domestic supply pressure, added by the expansion of C5/C9 petroleum resin capacity. Before 2014, China mainly relied on imports of high-end hydrogenated petroleum resin to cover its domestic supply gap. But after 2014, its import dependency rate has been falling, thanks to technological development and the increasing domestic capacity of hydrogenated petroleum resin. This trend is also reflected in the import and export prices. Average import prices of petroleum resin are at US$2 299/t in 2018, while the export prices are at US$1 563/t, for a gap of US$750-900/t.
At present, China’s petroleum resin products are exported to over 110 countries and regions around the world, with major destinations including India, the US, and southeast Asia. India is China’s largest importer of petroleum resins and imported 23 969 tons of products in 2018, accounting for 11% of the total. Its import volume logged an average annual growth rate of 18% as compared to 7 633 tons in 2011. The import volume of the US also increased at a fast pace during 2011-2018. The US imported 21 709 tons of petroleum resin from China in 2018, a share of 10% of the total. Its average annual growth rate reached 24% from 4 945 tons in 2011. Major reasons behind the US’ rising import demand include its lack of C5/C9 petroleum resin due to the development of lighter feedstock for ethylene crackers. In addition, US producers, such as Huntsman and Mobile, choose to produce high-end products for exporting and therefore, the US needs to import low-end products to meet its domestic demand.
China’s exports of petroleum resin are expected to continue rising over the next three years, considering its domestic capacity expansions. However, the growth rate may be lower than the 15% registered during 2014-2018. India will maintain a rapid growth pace in demand for low-end petroleum resin products, but a need for high-end products may emerge and increase with the country’s development. The US will mainly import low-end petroleum resin products from China. Southeast Asia, with strong growth, will remain the major export destination of China’s C9 petroleum resin. On the import side, China’s import volume of C9 petroleum resin will drop to 50 kt, with its domestic capacity expansion and technology upgrading of hydrogenated petroleum resin.
Future development
China’s C9 petroleum resins industry will face big challenges imposed by rapid capacity expansion, slowing domestic economy, and the weakness in the international crude oil market.
China’s C9 petroleum resin industry will face fiercer competition as booming capacity expansion will result in surplus supplies. Leading enterprises relying on their own large scale productive capacity will maintain a strong competitive edge, while small-scale enterprises lacking competitiveness may withdraw from the market. A majority of capacity additions are for hydrogenated petroleum resin products, which will impose downward pressure on prices.
Demand growth for C9 petroleum resins may be tempered by China’s slowing economic growth. China’s GDP growth is predicted at 6-6.5%, according to National Bureau of Statistics (NBS). Pillar industries, including the housing (the whole construction sector included) and automobile industries will face some headwinds. Among the downstream application areas of C9 petroleum resin, demand from the paintings, tyre and adhesives industries rely heavily on construction and auto manufacturing and thus, the demand growth driver will weaken.
In addition, expectations about the relatively weak international crude oil market in the following three years will take a hit on the chemical industry across the board.
