Aniline, as an important material for organic chemistry, can be used for the preparation of more than 300 types of products and midbodies and was applied in producing synthetic dyes in early stage. However, as environmental requirements have become more and more strict, the demand from dyes in downstream industries are increasingly limited, the consumption of aniline has been transformed from being dominated by traditional dye-related demand to MDI-related demand.
The cost support will be weakened in the next five years
Nitrobenzene catalyst hydrogenation method is the major technique in producing aniline of the industry, so the price of benzene directly affects the producing cost of aniline.
Several sets of large scale domestic refining and chemical units were put into production in the last quarter of 2022. But there is a lag in the time of being put into production between the supporting units of downstream industry and new benzene producing units, triggering the market concern for the supply growth of benzene.
Moreover, the monthly import volume of benzene was above 300 000 tons during the last quarter of 2022, further increasing the market supply. Therefore, the short supply of benzene may be turned to be balanced since then. The price of benzene, which steep rose in the first and second quarters, then fell and stabilized in the third quarter, may finally fluctuate downward during the end quarter of 2022.
The spot price of domestic benzene in 2023 is expected to go through a rise-and -fall curve at first and keep shocking down afterwards till the end of the year. The supply of benzene will be adequate and the price will be continually decreasing in the first quarter due to the capacity release by a large number of benzene producing units put into production in the last quarter of 202 and the first quarter of 2023. The price is expected to rebound in the second quarter of 2023 due to the reduced supply by newly constructed units as supporting units of downstream industries put into production will also consume the benzene supply produced. Meanwhile, the demand for aromatic components will increase during the second quarter, usually the travel peak season in the U.S. If the market demand in the second quarter of 2023 remains the same as the second quarter of 2022 in the U.S., which means an indirect push to the price of benzene of foreign market, the price of domestic benzene is going to be leveled up. The support for the price in the foreign market is withdrawing and the price will return to low level during the last two quarters of 2023.
As the supply and demand fundamentals of benzene are more adequate in 2023 than that of 2022 and the market of materials and crude oil are expected to be generally bearish, the price of benzene of 2023 will no higher than 2022 and the cost support for aniline is weakened.
It is estimated that the supply-demand environment of benzene will be turned to be tight-balanced from being tight and the expected new demand for benzene from downstream industries is supposed to reduce in the next five years. Benzene producing units are refining-chemical integration products which have relevantly more stable production and output than downstream industries. Therefore, the uncertainty of supply is smaller than uncertainty of demand in the five years to come. In the scenario where crude oil price decreases and supply-demand tension is eased, the price of benzene from 2023 to 2027 is estimated to go down.
The growth rate of output in 2023 will hit 0.7%
In recent years, the demand for aniline has obviously increased and the market price has been kept at high level because of the fast growing domestic MDI capacity, continuous and fast expansion in scale of production of rubber chemicals and the launch of several dye and medicine producing projects. For these reasons, some large aniline producers with advantages in materials have strived to newly construct or expand existing units to strengthen their dominance in the market. At the same time, some producers from downstream industries have successively started to construct supporting aniline producing units to meet their own demand for units. Therefore, China’s aniline capacity has been maximized increasingly, but some units were shut down as outdated capacity for various reasons. For example, the 70 000 t/a unit of Lanzhou Branch of Sinopec and 25 000 t/a unit of Chongqing Changfeng Chemical Co., Ltd. were shut down in 2020 and 2021 respectively. There were 14 aniline producers in China in 2022 with total capacity of 391 kt/a. See details in Chart 1 and Table 1.
Chart 1 The aniline capacity of China, 2017-2022
The representatives of domestic aniline producers are Yantai Branch of Wanhua Chemical and Shandong Jinling Group. Wanhua Chemical which owns two factories in Yantai and Ningbo, with total capacity of 1 620 000 t/a, is the biggest aniline producer in China. Its unit is aniline-PMDI (polymeric MDI) co-producing units by which the most of products are for self-use and a little are for export sales. Hence, the speaking right of Wanhua Chemical in spot market is relatively weak. Shandong Jinling Group, as the leader of aniline producers with non co-producing units in Northern China and bigger pricing power often makes offers taken as the benchmark by neighboring factories.
Two sets of newly constructed aniline producing units, with capacity of 385 000 t/a, are expected to be put into production. The growth of supply and demand for aniline will be continuing. Backed by the consumption of downstream industries, the rate of capacity utilization of aniline will be higher to some extent compared to 2022 and the growth rate of aniline output is estimated to reach nearly 0.7% in 2023.
MDI replacing dyes will become the dominating demand
Aniline was first used to produce synthetic dyes and rubber chemicals in 1940’s. After 1970’s, aniline was mainly used to produce synthetic MDI.
In recent years, as China’s capacity of MDI has been raised rapidly, the demand for aniline has grown while the growth of demand for non MDI such as dyes has been limited. The consumption structure of aniline of downstream industries in China is shown in Chart 2. The consumption of aniline in China has been transformed from being dominated by the demand for dye midbody to the demand for MDI.
Chart2 The consumption of aniline of downstream industries in China, 2021
Currently, aniline market fluctuates majorly with the supply and demand. As for overall demand, the aniline which is made by supporting units consumed to produce PMDI has little influence on the spot market. As for rubber, it is less subject to the capacity of producers because aniline is only one of materials and new demand for aniline in the future is limited. As for dye midbody, its demand for aniline is even ignorable for the amounts of dye used is too limited.
In the short term, demand for aniline will not be obvious but the supply of material of benzene will be greatly improved, which weakens the support to the cost of aniline, so aniline will be dragged weak by cost and demand.