By Cui Honglei, Sublime China Information (SCI)

Chinese n-butanol (NBA) market has seen a significant change in its supply-demand structure in 2020 due to the COVID-19, and as a result, the market is cooling off much. The average productive profit of NBA plants was only RMB141/t from January to mid-December 2020, marking a year-on-year decline of over 50% from the average profit of RMB474/t throughout 2019. In the fourth quarter, the NBA prices were perked up by multiple favorable factors and hit a new high of the year, and thus the profits increased continuously.

Prices

   In terms of the industrial chain, propylene is the key raw material of NBA, while butyl acrylate, butyl acetate and DBP are major derivatives of NBA. The whole chain was largely in a up-to-down trajectory in the recent five years. The prices of propylene, NBA and butyl acetate were all on the rise during 2016-2018, but the prices fell back in 2019-2020. From January to the middle of November 2020, the average price of propylene in Shandong was at RMB6 668/t, the price of NBA in Jiangsu was at RMB5 905/t, that of butyl acrylate in east China was at RMB8 032/t, and that of butyl acetate in Jiangsu was at RMB5 710/t.
   International crude oil futures have bottomed out since 2020, followed by the domestic NBA prices. Figure 1 shows the trend of NBA prices in Jiangsu from 2019 to 2020. Taking Jiangsu NBA market as an example, the average price of NBA was at RMB6 688/t in 2019, and dropped to RMB5 905/t from January to December 2020.

Figure 1 NBA prices in Jiangsu, 2019-2020

   The consumption of NBA’s derivatives, led by butyl acrylate and butyl acetate, began to increase during the golden September and silver October period. At the same period, there was a decrease in correlation between NBA and propylene. Figure 2 shows the propylene consumption structure from January to November 2020. It is estimated that China's propylene consumption will exceed 35 million tons in 2020, with the consumption from the PP sector accounting for more than 70%, and the consumption from other derivatives including propylene oxide, acrylonitrile, and butyl octanol taking up less than 30%.

Figure 2 Propylene consumption structure from January to November 2020

   The correlation between NBA and propylene remained high from the first quarter to the third quarter of 2020, especially in April. A buying spree of masks (mainly made from PP) in April led to a sharp rise in propylene prices, which caused the NBA prices to rally. Prices of domestic chemical products rose again from September on the back of faster recovery of domestic economy and an improvement in export data. In the context, both the sales volume and prices of butyl ester products increased, which boosted the market fundamentals in the NBA market. Therefore, the growth of NBA prices well outperformed that of feedstock propylene.

Figure 3 Gross profit of NBA in Shandong, 2019-2020

Profit

   The distribution of profits along the industrial chain has been extremely uneven in recent years. To be specific, the raw material propylene segment has taken up most of the profits, while NBA and downstream products have had limited profits. Industry surplus is the key factor that affects the profit distribution of industrial chain. At present, the extent of propylene surplus is low. The profit of petroleum-based propylene increased to RMB1 642/t compared with 2019 from 2019 to January-November 2020, and the profit of NBA decreased to RMB141/t, a sharp decline from the average profit of RMB474/t in 2019. The low profit led to a sharp decline in NBA production and an increase in dependence on imports. In 2020, domestic NBA capacity was corrected to 2.5918 million t/a. The domestic output of NBA was 1.5145 million tons from January to October, down by 9.42% from a year ago, and the operating rate was 70.12%. From January to September, China's NBA imports reached 212 600 tons, marking a year-on-year increase of 37.74%.

   The overall profit of NBA has increased with the continuous rise in the prices since the fourth quarter of 2020. The profit rose to RMB3 000/t in the middle of November. Table 1 shows the comparison of NBA production and profit from January to October 2020. The period of March-April saw the lowest profit and output.

   Figure 4 shows the monthly import dependence of NBA from 2016 to 2020. The lower supply of domestic goods pushed import dependence higher. August saw the highest import volume of the year, hitting 20%.

Figure 4 Monthly import dependence of NBA from 2016 to 2020

Forecast

   Demand has weakened since 2020 due to the virus. However, the prices are likely to rise from the fourth quarter of 2020 to the first half of 2021, although they will not reach to a level seen in October 2018.
   Table 2 shows new 2-EH/NBA capacities from 2021 to 2025. There will be no new NBA units to be put into operation in 2021. The capacity is expected to be flat at 2.5918 million t/a in 2021 and the output will rise to 1.98 million tons. The import volume is predicted to be maintained at a medium level in 2021, about 230 000 tons. Therefore, the total supply of NBA will reach 2.21 million tons in 2021.

   Butyl acrylate is the largest derivative of NBA. The operating rates of butyl acrylate plants have been increasing in recent years, leading to furious competition in the NBA market. The output of butyl acrylate is estimated to increase to 2.12 million tons in 2021, which will consume 1.3038 million tons of NBA.

   The domestic butyl acetate capacities are still surplus at present and there will be no new units to be put into production in 2021. As the influence of the pandemic is alleviating, the output of butyl acetate is expected to rise to 640 000 tons in 2021, which will consume 409 600 tons of NBA.
   The market share of DBP, another downstream of NBA, is small because the manufacturing of plasticizer products can be shifted with each other, and the properties and environmental protection of DBP are not good. There is no capacity expansion plan for DBP in the future. It is estimated that DBP production will increase to 460 000 tons in 2021, which will consume 253 000 tons of NBA.
   The consumption of other derivatives of NBA, such as coating solvent, is increasing. To sum up, the domestic consumption of NBA will reach 2.23 million tons in 2021, marking a year-on-year increase of 4.7%, reflecting that the market is back on the track to growth.