Wang Yuying, Li Musong

China is the largest producer of epichlorohydrin (ECH) in the world. More than 80% of its ECH is used for the production of epoxy resin, and the demand for ECH is expected to be robust due to the target of peaking carbon dioxide emissions in 2030 and the target of carbon neutrality in 2060. There are many new projects under construction in recent years. With large-scale units that adopt environment-friendly production routes coming online, the market competition will heat up.

Two processes mainly adopted in China

ECH is mainly used in the production of epoxy resin, synthetic glycerol and chlorohydrin rubber. At present, domestic plants mainly adopt propylene high-temperature chlorination process and glycerin process to produce ECH, which account for 23.45% and 76.55% of the total capacity respectively. The glycerin process is economically feasible in line with the development of biodiesel and it has been taking cost edge in recent years amid the rising prices of petroleum fuel. In the meanwhile, the propylene high-temperature chlorination process is under heavier environmental pressure. Therefore, domestic newly-built ECH projects prominently adopt the glycerin process in recent years, including Jiangsu Yangnong, Haobang Chemical, Ningbo Huanyang, etc, while Shandong Haili Chemical Co., Ltd. and Sinopec Baling Co., Ltd. adopt propylene high-temperature chlorination process. 

More new units have been built in recent years on higher gross profits

The total capacity of domestic ECH reached 1.812 million t/a in the end of 2021. Restricted by the environmental protection policies, Shandong Haili’s 320 000 t/a propylene-based ECH unit has been shut since October 25, 2018, and Changchun Chemical (Panjin) Co., Ltd.’s 80 000 t/a unit has also been idled. The effective capacity of ECH hit 1.412 million t/a in 2021. Table 1 shows the details.

ECH capacity is increasing year by year as a big number of new ECH plants have been built in recent years due to higher gross profits. As for the originally scheduled 55 000 tons of new capacity in 2021, only 190 000 tons were put into production because the whole market was shadowed by the pandemic, all of which adopted glycerol process, including Shandong Xinyue’s 60 000 t/a unit, Ningbo Zhenyang’s 40 000 t/a unit, Ningbo Huanyang’s 30 000 t/a unit and Zhejiang Haobang’s 60 000 t/a unit. The start-up of other units has been postponed to 2022, as shown in Table 2. It is worth noting that Jiangsu Ruiheng’s 150 000 t/a hydrogen peroxide-based ECH unit was put in commissioning in April 2022. The process is featured with both environmental protection and cost advantages, thereby obtaining much attention from the market players.  

With new capacities coming online, the domestic ECH output has increased year by year, and the compound growth rate of output reached 8.5% in the past five years. The capacity growth was limited from 2017 to 2019, and restricted by the environmental protection policies and the actual market demand, the operating rates were low, contributing to around 700 000 tons in 2019. 

The output increased to 880 000 tons in 2020 because new capacities were massively released and the operating rates were driven by strong epoxy resin demand as the national subsidy policy lent support to the terminal wind power industry. The output increased slightly to 920 000 tons in 2021 because of limited capacity release and lately capacity idling. Figure 1 shows the changes in China's ECH production from 2017 to 2021.

Figure 1 Changes in China's ECH production from 2017 to 2021

The demand from epoxy resin sector accounts for 85%

There are many derivatives of ECH in China, including epoxy resin, triglycidyl isocyanurate (TGIC), cationic etherifying agent, pharmaceutical intermediate and chloroether rubber. Among them, epoxy resin is the biggest derivative, accounting for more than 85% of the total consumption.

Domestic apparent consumption of ECH was on a rise from 2019 to 2021 as driven by stronger downstream demand. In 2019, the apparent consumption of ECH was about 706 800 tons, and increased to 875 500 tons in 2021, with an average annual growth rate of 11.3%. Table 3 shows the domestic ECH supply and demand during 2019-2021.

The epoxy resin market will continue to expand in 2022 given a bright market outlook due to stronger demand for its downstream wind power and electronics sectors. Therefore, the consumption for ECH will keep rising. According to rough statistics by Oilchem.net, the capacity of epoxy resin scheduled for 2022 is more than 1 million tons. This, combined with the restart of Kunshan Guodu’s unit that was shut in 2021 and start-up of other epoxy resin units, will lead to an increase of 3 million tons in the total capacity. At the same time, the industry competition will be further intensified, and the overall operating rate of epoxy resin may be lower than that in 2021 amid more fierce market competition. It is estimated that the output of epoxy resin will reach 1.67 million tons in 2022, with the consumption of ECH at about 825 300 tons; the output of TGIC will be about 50 000 tons, with the consumption of ECH at 75 000 tons. Therefore, the total demand of ECH will be more than 900 000 tons.

Imports fell and exports increased

China's ECH import volume is small, and it has been decreasing in recent years. The volume was at 15 500 tons in 2019. It was at 7 100 tons in 2020, and at 2 300 tons in 2021, down by 67.6% year on year. The imports are mainly from Thailand, South Korea, Taiwan of China, Japan and Germany. Among them, the import volume from Thailand has significantly decreased in line with the serious pandemic situation and the low operating rates there.

China's ECH export volume is in stark contrast to the import volume. In 2021, the export volume increased to more than 46 800 tons, reaching a record high and marking a whopping year-on-year increase of 116%. South Korea, Thailand and Netherlands are three main export destination for China’s ECH goods, accounting for 47.8%, 13.4% and 10.2% respectively in 2021. The rest ECH goods are exported to India, Taiwan of China and the United Arab Emirates. The increase in the export volume in 2021 was mainly because the operating rates of foreign ECH plants were too limited to be covered by imports amid the severe pandemic situation in foreign countries and the extremely cold weather in Europe and America.

In terms of the trade mode, ECH exports are mainly conducted by general trade and imported processing trade. In 2021, the export volume by general trade mode accounted for 94.52%, and the volume by imported processing trade accounted for 5.48%.

The domestic ECH demand has outpaced supply a lot in 2022, mainly attributed to the sharply volatile crude oil prices associated with the Russia-Ukraine conflict and the pandemic contagion nearly paralyzing logistics and transportation between regions. In the context, China is keen to export the excessive ECH to ease the domestic inventory pressure, while foreign buyers show appetite for ECH to cover their needs unsatisfied by the pandemic. Therefore, the export volume increased sharply in the first quarter of 2022. The export volume is expected to rise slightly during 2022. 

Epoxy resin is the biggest derivative of ECH in China, so the development of the downstream industry directly determines the future trend of the ECH industry. The wind power industry is expected to give strong support to the epoxy resin market, as driven by the target of peaking carbon dioxide emissions in 2030 and the target of carbon neutrality in 2060, but the epoxy resin supply is turning surplus, which will hamper the market growth and hence slow down the demand for ECH. At present, domestic ECH market is challenged by a big number of producers and environmental issues. In response, big-sized environmental protection units will be built in the future, which will result in more fierce competition.