Shandong sets clear goals for the upgrading of the fertilizer and coal chemical industries

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Source: China Chemical Industry News Editor’s Note: As the year reaches its midpoint, the petroleum and chemical industries, which are striving to move forward amid a complex economic landscape, have reached another important moment to assess the first half of the year and look ahead to the second half. What phenomena, experiences, and lessons are worth summarizing from the first half of the year? What will be the development trends in various sectors of the petrochemical industry in the second half, and which tasks must be given priority? Starting today, our newspaper has invited executives and experts from key companies in the industries of methanol, fertilizers, pesticides, chlor-alkali products, plastic pipes, calcium carbide, and rare earths to share their predictions and opinions on these topics. 　 　If we extend the time frame, it is not difficult to see that the methanol market has been in a six-year bear market since July 2008. Especially in the first half of this year, under the combined pressure of overcapacity, weak traditional consumption, and sluggish new consumer demand, the methanol market experienced its worst performance in nearly 6 years – with almost no upward movement at all, aside from a slight rebound of less than 10% from mid-January to mid-February. In the middle and late part of June, the ex-plant prices of methanol in various regions fell below the overall costs for most companies, leading to an increase in losses across the industry as well as more companies reducing production or shutting down altogether; the average operating rate of production facilities was less than 60%. This phenomenon has raised concerns among many people regarding the prospects of the methanol industry, and some analysis firms have also given negative assessments of the medium- to long-term trends in the methanol market. 　　However, the author believes that the methanol industry and market are not pessimistic in the long term. On the contrary, driven by strong growth in new consumption, the methanol industry, which has been in a period of adjustment for 6 years, is gathering strength in pursuit of a breakthrough. In the future, it is expected that, with sufficient trading volume, it will end its period of adjustment and enter a path of steady growth. 　　Firstly, the problem of overcapacity is gradually easing. According to statistics from the China Nitrogen Fertilizer Industry Association, in 2013, China’s methanol production capacity and output were 56.962 million tons and 35.847 million tons respectively. Using an average operational rate of 85% for standard industry facilities as a reference, an overcapacity of around 22% seems quite severe, but this is not the case. This includes 11 million tons of methanol production capacity from coke oven gas and 22 million tons from natural gas. Affected by weak demand for coke and significant cost inversion, the operating rate of domestic coke production facilities has declined and will continue to do so; at most 60% of the capacity for producing methanol from 11 million tons of coke oven gas can be utilized. As for the 22 million tons of methanol production capacity based on natural gas, due to the tight supply and high prices of natural gas in the country, a considerable number of facilities have been shut down for extended periods, while a few companies operate at reduced capacity; as a result, it is also difficult for this capacity to be fully utilized. Especially after the increase in natural gas prices on July 1 last year, the operating rate of methanol plants powered by gas dropped to around 50%. In the next 3 years, as natural gas prices rise, the operating rate of methanol production will continue to decline at a rate of 10% per year. Based on this calculation, the actual effective methanol production capacity in China is only 41.562 million tons. Based on last year’s production levels and an equipment utilization rate of 85%, and after accounting for net imports of over 5 million tons, domestic methanol production capacity is actually not in excess, which creates conditions for a recovery in the industry’s prosperity. 　　Secondly, structural adjustments have yielded significant results. Before 2008, the production capacity of ligroin accounted for over 50% of China’s total methanol production capacity. The syngas production unit uses smokeless lump coal as raw material and a fixed-bed batch gasifier; it has drawbacks such as outdated process technology, small scale of the unit, high energy consumption, significant pollution, and high overall cost of the products. After six years of continuous decline in the methanol market, these plants, along with smaller nitrogen fertilizer plants, were mercilessly phased out by the market. Instead, there are large-scale methanol production plants based on efficient clean gasification technology. Although these plants require a high initial investment, their advanced process technologies, large scale, high degree of automation, low energy consumption and minimal emissions, along with the availability of raw materials at low costs, result in significant economies of scale and strong competitiveness. With the expansion of this methanol production capacity, the structure of China’s methanol industry continues to improve, costs decline, and its ability to withstand the impact of imported methanol grows stronger. 　　It is particularly important that increased consumption has become a new engine for the development of the industry. Unlike sectors such as fertilizers, coke, steel, and cement, where there is an overcapacity and declining demand, the methanol industry also appears to have excess capacity. However, thanks to the successful development of promising new markets for methanol, such as its use as a fuel for vehicles, in the production of olefins, and in the manufacture of aromatics, the industry has a stronger foundation and more momentum for healthy development. 　　As of July 10, the total production capacity of methanol-to-olefins plants in operation domestically was 4.455 million tons. In the future, another 3 units for producing olefins from purchased methanol will come online, operated by Yangmei Hengtong, Shenhua Ningmei, and Shandong Shenda. Additionally, numerous methanol production projects based on coal will go into operation, including those operated by Shanxi Coal Chemical Group in Pucheng, Shenhua Yulin, Mengda New Energy, and Jiu Tai in Ordos. Conservatively estimated, in 2014, the consumption of methanol in the domestic methanol-to-olefins sector will reach 11 million tons. According to estimates by the China Nitrogen Fertilizer Industry Association, by 2016 China’s total capacity for producing olefins from methanol would reach 10 million tons. At that time, the annual consumption of methanol would be 30 million tons, accounting for more than one-third of China’s total methanol production capacity, making it the largest sector in terms of methanol consumption. 　　The prospects for methanol fuel in vehicles are also promising. Although the M15 methanol gasoline standard has not been established yet due to resistance from interest groups, the significant cost-effectiveness of methanol fuel for use in vehicles has been recognized by an increasing number of consumers. This has led to an annual consumption of over 4 million tons of methanol in the transportation industry, with this figure rising at a rate of more than 500,000 tons per year. Currently, the pilot program for high-proportion methanol vehicles, led by the Ministry of Industry and Information Technology, is being carried out in Shanxi, Shaanxi, and Shanghai in an orderly manner. A second round of pilots is expected to be launched in the future with an expansion of the scope of these trials, which will drive a significant increase in the demand for methanol as a fuel for vehicles. 　　Furthermore, highly promising areas for methanol consumption such as DMMn (polymethoxymethane) and aromatics production from methanol are currently seeing the construction of large-scale industrial facilities; once these come online, the annual methanol consumption in each of these areas is set to exceed 10 million tons. Given that China’s economy is expected to maintain moderate growth for an extended period, it is anticipated that traditional markets for methanol, such as those for formaldehyde, acetic acid, methyl tert-butyl ether, dimethylformamide, and dimethyl ether, will not see significant growth in the future; however, they are likely to retain their current level of development. 　　Therefore, driven by the consolidation in traditional sectors and the increase in new demand, the methanol industry is bound to encounter new opportunities for growth, and the methanol market is expected to find a bottom and enter a phase of steady upward momentum.