Shi Weina, Sublime China Information
In 2022, China's methyl methacrylate (MMA) will stage the strongest expansion of unit capacity in the past five years. It is expected to have a new capacity of 865 000 t/a if all units can be put into operation on schedule. By then, the production capacity will reach 2.395 million t/a, a year-on-year increase of more than 56%. With the rapid growth of production capacity, it has become the focus of the industry to dig deep into domestic demand and continuously expand export channels.
Continuous expansion of the domestic MMA industry
From 2017 to 2021, the production capacity of MMA kept increasing year by year, with an average growth rate of 14% in the past five years, among which the year 2019 had the fastest year-on-year surge of 38%. In 2022, the production capacity is expected to increase by 57% year-on-year, which will break the record of the previous five years. As of the end of May 2022, China’s new MMA units with a capacity of 305 000 t/a have been put into operation, completing 1/3 of the year's progress. The domestic MMA production capacity has reached 1.835 million t/a. From 2017 to 2021, MMA output maintained an upward trend, with an average growth rate of 18% in the past five years, of which the year 2019 had the fastest year-on-year surge of 44%.
From the current regional capacity, there are two new MMA units in East China from January to May 2022, one in Shandong province, and the other one completed the improvement of production capacity based on the original unit. The proportion of production capacity in East China increased by four percentage points to 39%, still the largest supplying place in China. The proportion of production capacity in Shandong province increased by two percentage points to 30%. Northeast, Southwest and South China accounted for 14%, 12% and 5% respectively.
From the process route, currently the production technologies of domestic MMA mainly are the acetone cyanohydrin process and the isobutylene process, which are based on the deep development of petrochemical raw materials C3/C4 to synthesize MMA. The acetone cyanohydrin process dominates the existing MMA units, and the proportion continues to increase to 72%, while the C4 process accounts for 28%. In addition, the first set of ethylene process technology in China has made breakthroughs, opening up a new route in synthesizing MMA from feed gas for coal chemical and petrochemical production of ethylene, which synthesizes MMA with C2. The project has started to be constructed by Henan Zhongyuan Dahua Group in April this year.
Gross profit margin becomes a self-regulator of supply
1. Acrylonitrile-MMA-Acrylonitrile-butadiene-styrene (ABS) product chain
In recent years, newly-added MMA projects are usually constructed in conjunction with acrylonitrile plants, using its by-product hydrocyanic acid to make production. At present, China has 9 MMA production enterprises using acetone cyanohydrin process, 4 of which are self-owned acrylonitrile units, and 2 are supporting facilities in the park. As of the end of May, the own matching rate of MMA unit was 56%, and the park matching rate was 19%. Since 2021, the acrylonitrile industry has added a cumulative capacity of 1.04 million t/a, a year-on-year increase of 41.45%. However, due to the insufficient capacity expansion of downstream ABS and nitrile latex, the two major fields have limited contribution to the consumption increase of acrylonitrile, not more than 300 000 tons. Therefore, in 2021, acrylonitrile industry gradually became oversupply. Since March 2022, the factory has continued in the red, and the factory was in the process of balancing operation and profits. Since this year, company profits have been concentrated in MMA and ABS products in the acrylonitrile-MMA-ABS product chain.
2. Methyl tert-butyl ether (MTBE)-isobutylene/tert-butanol-MMA/methacrylic acid (MAA) product chain
The process of C4 production of MMA is the direct oxidation of isobutene or tert-butanol, which is converted from MTBE with C4 process. Since the Lunar New Year in 2022, international oil price has continued to rise and remained at a level above US$100/barrel and even higher. With the continued rise in international crude oil, this will increase the production cost for companies with C4 process. In the first half of 2022, the estimated cost of the C4 process was about RMB13 300 per ton, with a loss of nearly RMB1 100 per ton. The continuous rise in crude oil prices led to the rise in gasoline prices, and with good profitability, the operating loads of foreign oil refining units increased in varying degrees, and the demand for high-octane components also continued to rise. The internal and external arbitrage window of MTBE has opened, and the export volume has increased significantly, which has formed a strong support for the rise of MTBE prices, and also discouraged the enthusiasm of the C4 process to produce MMA.
With the rapid growth of production capacity, the output is also self-adjusting. It has become the focus of the industry to dig deep into domestic trade demand and continue to expand export channels.
Dig deep into domestic consumption to boost demand growth
The downstream demand for MMA in China is mainly concentrated in the industries of polymethyl methacrylate (PMMA) particles, sheets, acrylates (ACR), paint and ink resins, adhesives and special monomers. From 2017 to 2021, the consumption of MMA maintained an upward trend, with an average growth rate of 13% in the past five years, among which the year 2019 had the fastest year-on-year surge of 39%. In 2022, due to the external environment changes, consumption is expected to drop by 3% year-on-year. High inventory and low revenue are the main difficulties for the current downstream terminal manufacturing industry. Various industries have undesirable development in general. From January to May 2022, the production and sales of the automobile industry dropped by 9.6% and 12.2% year-on-year, while the real estate climate index was 95.6~96.92. With the improvement of the external environment, these industries will get recovered and the demand for MMA will recover to a certain extent.
At present, there are 6 PMMA particle manufacturers in China, with a total production capacity of 390 000 t/a, of which 4 are equipped with upstream MMA units. From 2018 to 2021, although the import dependence of PMMA has a downward trend, it has still remained at a high level of 50%. On the one hand, there are still technical barriers in the high-end PMMA production, and complete self-sufficiency can not be achieved. However, the competition in middle-low-end products is relatively fierce. On the other hand, Saudi PMMA unit started running in 2018, and due to its low production cost, it quickly squeezed into the top level of the domestic PMMA import market. With the breakthrough of domestic technology and the changes and development of the industry, there is still a lot of room for improvement in the demand for PMMA particles. While in the sheet metal industry, due to the high price of raw material MMA, most enterprises used recycled materials to replace MMA in production to balance the cost and improve the market price competitiveness. So the recycled materials took up a large part of the MMA market. With the expansion of domestic production capacity and the adjustment of domestic supply and demand pattern, the downstream sheet metal manufacturers will increase the proportion of MMA procurement if MMA gives profits. Then part of the demand replaced by recycled materials will be restored.
Expand export channels to have steady growth in foreign trade
While MMA imports are halved in 2021, exports have ushered in a peak. MMA is classified as methacrylates, and the HS code is 29161400.
According to statistics from the General Administration of Customs, China exported 178 700 tons of methacrylates in 2021, a year-on-year increase of about 264.68%. Domestic MMA manufacturers quickly opened up the foreign market because of the foreign supply gap and the price difference between domestic and foreign market. From January to May 2022, the export of methacrylates had a cumulative volume 57 100 tons, a year-on-year decrease of 30%. However, from the monthly export data, the export volume was increasing month by month, and the average monthly export volume was around 11 000 tons. Compared with the analysis of data from export trading partners in 2021, although the export has declined from January to May 2022, the top three, India and the Netherlands are still listed, accounting for 45% of total exports. From January to May, the proportion of exports from Taiwan of China and the Netherlands increased significantly. Among them, the proportion of exports from Taiwan of China increased by 8 percentage points to 15%, the proportion of exports from the Netherlands increased by 6 percentage points to 16%, and the proportion of exports from India decreased by 5 percentage points to 13%. The obvious increase in other export trading partners includes Colombia, Brazil, Peru, etc. in South America, Belgium, Germany, etc. in Europe, Vietnam, Indonesia, Thailand, Singapore, etc. in Southeast Asia.
In 2021, due to the overseas force majeure, foreign orders flooded into domestic market, While this year, some domestic production enterprises are actively seeking export opportunities. Through comparative analysis, the export trend of MMA has been very obvious, and the depreciation of the RMB exchange rate has provided support for the export market. With the large-scale production capacity in China, more companies will be willing to establish cooperative relations with overseas companies, promote the integrated development of domestic and foreign trade, and further promote the domestic and international dual circulation.
