What is the cash flow for ethylene glycol produced from coal? | Global Ethylene Glycol Market Analysis

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What is the cash flow for ethylene glycol produced from coal? | Global Ethylene Glycol Market Analysis
Author/Source: ChemNet Coal Chemical Industry
Date: March 6, 2018
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A. Supply, demand, and capacity distribution
Global supply and demand pattern
In recent years, with the rapid growth in global consumption of polyester products, the production of ethylene glycol has also developed at a relatively fast pace. In 2003, the total global production capacity for ethylene glycol was only 15.862 million tons. It rose to 18.7973 million tons in 2006, and further increased to 22.151 million tons in 2009. In 2010, as several new or expanded ethylene glycol production facilities came online in China and the Middle East, production capacity increased significantly, with global capacity rising to 24.67 million tons. By the end of 2015, the global capacity for ethylene glycol reached 29.51 million tons, with production amounting to 24.95 million tons; the capacity utilization rate was 84.5%, and total consumption was 25.61 million tons, resulting in a basic balance between supply and demand. However, a comparison of the global supply and demand distribution reveals a significant imbalance in supply and demand in Asia and the Middle East. Asia accounts for around 50% of the world’s total ethylene glycol production capacity, while its demand accounts for over 80% of the global total ； The Middle East accounts for around 29% of the world’s total production capacity, while its demand accounts for only 4%. Therefore, Asia is currently the region with the highest global demand for ethylene glycol, while the Middle East is the largest export region. The previous wave of large-scale commissioning of ethylene glycol production facilities took place between 2009 and 2010; in recent years, the pace of commissioning has slowed down significantly, with few new facilities coming online globally between 2011 and 2014. In 2010, the growth rate of ethylene glycol worldwide was 11%; thereafter, the growth rate remained below 5% from 2011 to 2014. Starting in 2015, the pace of new capacity additions accelerated, and between 2015 and 2017, the total amount of ethylene glycol capacity put into the market globally reached 6.91 million tons, of which 2.94 million tons came from coal-based production. In recent years, investment in ethylene glycol production capacity along the traditional petrochemical routes in the international market has slowed down significantly; it is expected that a more concentrated period of investment will occur after 2018. In terms of the regional distribution of ethylene glycol production, 78% of the world’s production capacity is concentrated in Asia and the Middle East. In 2016, the production capacities in Asia and the Middle East were 18.557 million tons and 10.861 million tons respectively ； Next is North America, with a production capacity of 4.98 million tons, accounting for 13.3% of the global total capacity ； Next is the European region, with a production capacity of 2.246 million tons, accounting for about 6% of the global total capacity ； South America’s production capacity is 826,000 tons, accounting for 2.2% of the global total capacity. Looking at the distribution of global ethylene glycol production capacity, industry concentration is high due to constraints such as production technology and raw materials. Data shows that as of 2016, Saudi Basic Industries Corporation (SABIC), the world’s largest producer of ethylene glycol, had a production capacity of 6.64 million tons, accounting for approximately 17.7% of the global total capacity; its facilities are mainly located in Saudi Arabia ； Next is Dow Chemical, which ranks second in the world with an annual production capacity of 3.595 million tons; its facilities are mainly located in Canada, the United States, and Kuwait ； In third place is Sinopec, whose production capacity reached 3.244 million tons in 2016, with its facilities mainly located in China. From a global demand perspective, ethylene glycol has a wide range of applications; it can be used in various fields such as polyester fibers, antifreeze, adhesives, unsaturated resins, polyurethanes, and glyoxal. In terms of global application areas, ethylene glycol used in the polyester industry accounts for 65% of the total global production, while consumption in packaging resins accounts for 29% ； In terms of demand distribution, over 80% of global demand is concentrated in Asia, with China accounting for 57% of it. Supply and demand situation in China: China has always been an important manufacturing hub for the global textile industry, but currently, its demand for ethylene glycol is still met through imports. In terms of polyesters, in 2016 China’s production capacity was 46.93 million tons, while its output was 36.59 million tons; it is thus the world’s largest consumer of ethylene glycol. In 2016, China’s ethylene glycol production was around 5.28 million tons, while imports amounted to 7.572 million tons. The apparent consumption level was approximately 12.71 million tons, resulting in an import dependence of around 60%, as well as a significant supply-demand gap. Looking at the growth in China’s ethylene glycol production capacity and output from 2007 to 2016, the growth rates were quite volatile. The production capacity was around 2 million tons in 2007; after 2010, the growth rate remained relatively stable, and by 2016 the production capacity had reached 8.235 million tons. China’s ethylene glycol production process relies primarily on the petroleum-ethylene route, with a high degree of alignment between production sites and consumption areas. Production is concentrated in the East China, North China, and Central China regions, as these areas are located near both consumption centers and refineries and ports. In recent years, the share of production capacity in the northwestern region has increased significantly, mainly due to the abundant coal resources in this area. With the continuous development of coal-to-ethylene glycol production, the growth rate of production capacity in this region has been fast. http://img.yf116.cn/image/img/20180306/151095460950.jpg In terms of the demand for ethylene glycol, in China the main area of consumption is polyester; polyester accounts for over 90% of the total demand for ethylene glycol. Less than 10% of it is used in areas such as antifreeze, unsaturated resins, and polyurethanes. Polyesters are primarily used in the production of polyester fiber and bottle chips; polyester fiber includes both long-staple and short-staple polyester fibers, which are ultimately used in the textile industry. This accounts for around 75% of the total consumption of ethylene glycol in downstream applications ； Bottle chips are ultimately used in the food and beverage packaging industry, accounting for around 12% of the total downstream consumption of ethylene glycol. Situation at Entry Point B; Global import and export trends. Thanks to advantages such as cheap natural gas, the Middle East has become a major exporter in the global ethylene glycol market. Saudi Arabia has the largest global exports of ethylene glycol** ； SABIC, ME Global, and SHELL are the major global suppliers of ethylene glycol. The proportion of goods sourced from Saudi Arabia remains roughly between 45% and 47%, and under the fixed-contract model with buyers, the proportion of imports stays relatively stable. As the ethylene glycol production facilities in Saudi Arabia are mostly undergoing scheduled routine maintenance, and any changes in export volumes due to unexpected factors are limited, its overall import volume remains relatively stable. Canada and Kuwait, as the main producers of ethylene glycol for ME GLOBAL, provide a relatively stable supply on an annual basis. Additionally, as demand from China rises, supplies from Canada and Kuwait have been increasing in recent years. The regions with the highest imports of ethylene glycol are located in Asia. In 2015, Asia imported 9.88 million tons of ethylene glycol, of which China imported 8.72 million tons. The top five importing countries were China, the United States, India, South Korea, and Indonesia. Import situation in China: At present, China remains highly dependent on imports for ethylene glycol. Although there is a slight downward trend overall, China’s overall import dependence on ethylene glycol has remained above 60% for a long time. In 2016, China imported 7.572 million tons of ethylene glycol, a significant decrease compared to 2015. It is expected that as China’s production capacity continues to expand and coal-based technologies improve, reliance on imports of ethylene glycol will decrease. In terms of sources of import, in 2016, China’s main suppliers of ethylene glycol were Saudi Arabia, Canada, South Korea, and Singapore. Saudi Arabia was the largest source of imports for China’s ethylene glycol, accounting for 46% of total imports; the main suppliers were companies such as SABIC, ME Global, and SHELL. http://img.yf116.cn/image/img/20180306/1511575471752.jpg C Production Process: Globally, the production processes for ethylene glycol can be divided into two main types: those based on oil and those based on coal. The oil-based processes further include methods that use naphtha as a raw material and those that use ethane as a raw material (derived from natural gas); in all cases, ethylene is produced first, and then ethylene glycol is manufactured through the production of epichlorohydrin ； Coal-based processes include the oxalate method, the methanol synthesis method, and the direct synthesis method. Oil-based process: Currently, the vast majority of ethylene glycol production facilities worldwide utilize an oil-based route. In most regions, naphtha is used as the raw material; over half of the total production capacity relies on this naphtha-based method. Among these, integrated plants account for more than 80%. Non-integrated technologies (for producing ethylene monomer) are predominantly found in Asia. Additionally, the technology for producing ethylene glycol from natural gas accounts for about 1/3; given the distribution of natural gas resources, this technology is primarily concentrated in regions such as the Middle East, Canada, and the United States. The advantage of the oil-based ethylene glycol production process is its maturity, while the disadvantages are high water and energy consumption, high costs, and the fact that the key technologies are largely monopolized by three companies: SHELL, SD, and UCC. Coal-based production process: In recent years, as technologies related to coal-based chemical manufacturing have continued to advance, the capacity for producing ethylene glycol from coal has also increased. China being a country rich in coal resources, the majority of such production capacity is located there. Furthermore, with the development of coal-based technologies, China’s capacity for producing methanol from coal has been continuously expanding, and significant progress has been made in the technology for converting methanol into ethylene glycol in recent years. The oxalate method uses coal as a raw material; through gasification, shift reaction, purification, and separation, CO and H2 are obtained respectively. CO is then used to produce oxalates via catalytic coupling and purification, and polyester-grade ethylene glycol is obtained by carrying out a hydrogenation reaction with H2 followed by purification. This process features a short workflow and low costs, making it the most prominent coal-to-ethylene glycol technology at present. The remaining coal-based ethylene glycol can be mixed in up to 20% at most. The problem with coal-based ethylene glycol is that it cannot be supplied continuously and reliably, as the instability of the catalysts in the production process results in inconsistent product quality across different batches. Since 2015, the quality of coal-based ethylene glycol products has improved slightly, and these products are mainly transported by ship and rail. The methanol synthesis method, also known as the MTO method, has a production process that involves coal – methanol – olefins – ethylene oxide – ethylene glycol. This technology is mature, but the investment costs associated with the methanol production stage are high. If Ningbo Fude Energy has to purchase methanol from external sources, it will be difficult to control raw material costs. Additionally, there are limitations in raw material supply and a large amount of by-products are generated. The direct synthesis method involves producing syngas (CO+H2) through gasification of coal, and then directly synthesizing ethylene glycol from this syngas in a single step. The key to this technology is the selection of catalysts. Currently, the catalysts used in this process are relatively expensive, high reaction pressures are required, and the selectivity for ethylene glycol is low; therefore, industrialization remains difficult for a considerable period of time. D Comparison of production capacity and cash flow; Analysis of production profits for the petroleum-based route. The most mature and widely used method at present is the traditional ethylene route (producing ethylene glycol from naphtha or imported ethylene). Below, the cash flow patterns of ethylene glycol produced from naphtha and from externally sourced ethylene are primarily compared. The calculation method for naphtha production is based on the US dollar, using international formulas; wherein the external market cost of MEG equals 0.81 × naphtha price + $150 per ton. In recent years, the profits from producing ethylene glycol from naphtha have been quite substantial; however, by the end of 2015, sharp drops in the price of ethylene glycol led to a significant reduction in profits ； Since 2016, the overall cash flow for ethylene glycol has been in the range of $150–$400 per ton ； In the first half of 2017, due to a weak price differential for naphtha, the profit margin for ethylene glycol reached a peak of 400 dollars per ton; in the second half of the year, as crude oil and naphtha prices rose, this profit margin dropped to between 250 and 300 dollars per ton. http://img.yf116.cn/image/img/20180306/1514135485378.jpg The calculation method for ethylene production is converted into RMB; according to the current international formulas, the cost of ethylene glycol is equal to 0.605×East Asia ethylene×1.17×1.01×RMB exchange rate + 1,000 yuan per ton. In recent years, the production of ethylene glycol from ethylene has been loss-making for the most part, especially in 2016 when losses persisted for an extended period. The main reason for this was the strong demand for polyolefins, which are products derived from ethylene, in 2016, leading to a significant increase in the price of ethylene. After 2017, due to factors such as a negative macroeconomic environment, a sharp drop in international oil prices, lower-than-expected demand from downstream industries, and a significant decline in PTA prices, ethylene glycol experienced a substantial price drop, and at one point it even incurred losses ； In the second half of the year, as demand for polyester and the fundamentals of ethylene glycol improved, the price of ethylene glycol began to rebound. Meanwhile, ethylene prices remained weak, leading to wider profit margins for ethylene glycol ； In the second half of the year, the price of ethylene glycol remained stagnant; the profitability of producing ethylene glycol from ethylene was average, with costs being on the higher side. However, on an annual basis for 2017, the profit margins for ethylene glycol were better than those in 2016. Currently, the profit margin from producing ethylene glycol from naphtha remains high, while the cash flow associated with producing ethylene glycol using purchased ethylene has been poor. It was not until the second quarter of 2017, due to a significant drop in ethylene prices, that the cash flow for this production method improved. Analysis of production profits for the coal-based route; the cost calculation for this route is based on a 200,000 tons per year ethylene glycol production facility ； 100% operational ； In Inner Mongolia, lignite is used as the raw material (5.6 tons per ton of product), while in the central region (Shanxi, Henan), anthracite is used as the raw material (3.2 tons per ton of product) ； Ethylene glycol consumption is mainly concentrated in the eastern part of China, while coal-based ethylene glycol manufacturers are mostly located in the northwest region; therefore, the transportation costs of ethylene glycol need to be taken into account. http://img.yf116.cn/image/img/20180306/1516235498399.jpg Analysis of production profits for the coal-based route; the cost calculation for this route is based on a project with an annual output of 200,000 tons of ethylene glycol ； 100% operational ； In Inner Mongolia, lignite is used as the raw material (5.6 tons per ton of product), while in the central region (Shanxi, Henan), anthracite is used as the raw material (3.2 tons per ton of product) ； Ethylene glycol consumption is mainly concentrated in the eastern part of China, while coal-based ethylene glycol manufacturers are mostly located in the northwest region; therefore, the transportation costs of ethylene glycol need to be taken into account.