Market prices plummet from high levels; despite a reduction in value-added tax, coal-based ethylene glycol production remains unprofitable

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Market prices plunge; despite lower VAT, coal-based ethylene glycol production remains unprofitable. Author/Source: Huahua Network – Coal Chemicals. Date: April 1, 2019. Clicks: 7. Starting from April 1, **the VAT rate for all industries will be reduced significantly. The VAT rate for the coal-based ethylene glycol industry, which was previously 16%, will be reduced to 13%, a development that brings relief to industry insiders. However, some experts argue that tax cuts alone cannot help coal-based ethylene glycol manufacturers overcome their difficulties; taking advantage of favorable policies to accelerate technological progress, improve product quality, and avoiding reckless investment in new projects are the practical ways to emerge from these challenges. Since the fourth quarter of 2018, ethylene glycol prices have plummeted, leading to a significant reduction in profits for the coal-based ethylene glycol industry; currently, most companies are operating at a loss. “A reduction in value-added tax can lower production costs and improve a company’s operational conditions to some extent, but the impact is limited; it is even less likely to change the supply-demand balance and enable coal-based ethylene glycol manufacturers to overcome their difficulties completely. ”Hu Dawei, head of the Financial Assets Department at Shaanxi Coal and Chemical New Energy Co., Ltd., said. It is understood that the coal-based ethylene glycol industry is facing various challenges, including excessive capacity growth, limited new capacity in the downstream polyester industry, rising coal prices, low oil prices, and competition from the ethane-based production route. In terms of capacity growth, alone in 2018, China added 2.22 million tons of new production capacity for ethylene glycol produced from coal (syngas), bringing the total annual production capacity for coal-based ethylene glycol to 4.66 million tons ； Between 2019 and 2021, another 33 coal (syngas)-based ethylene glycol production projects will come online in China, adding 9.47 million tons per year of production capacity. By then, the total production capacity of coal-based ethylene glycol will reach 14.13 million tons per year. Among them, the total production capacity of ethylene glycol projects that came online in 2019 alone (most of which are coal-based ethylene glycol plants) reached 3.64 million tons per year, an increase of 34.5%. However, there are few new projects in the downstream polyester industry set to come online in the next 3 years. In terms of costs, current enterprises that produce ethylene glycol from coal via syngas-oxalate hydrogenation not only face the challenges posed by the two existing ethylene glycol production methods – ethylene production through ethane cracking and ethylene production through naphtha cracking – but also the challenge of new technologies that use coal, syngas, formaldehyde/glycolic acid to produce ethylene glycol at lower costs. Surveys show that after the reduction in the value-added tax rate on April 1, coal-based ethylene glycol manufacturers will experience lower capital requirements and financial costs in areas such as the procurement of raw materials, production, and sales, which in turn will enhance the competitiveness and profitability of their products. However, the reduction in value-added tax applies to the entire industrial chain; since coal-based ethylene glycol does not have a complete upstream and downstream industrial chain, the tax cut has a limited positive impact on it. Accelerating technological progress, improving product quality, and avoiding reckless investment in projects are the practical options for helping the coal-based ethylene glycol industry overcome its difficulties. Experts such as Jin Yong, an academician of the Chinese Academy of Engineering, and Yao Yuangen, a researcher at the Fujian Institute of Research on the Structure of Matter under the Chinese Academy of Sciences, have expressed this view. Jin Yong said that breakthroughs in core technologies and the enlargement of key equipment can effectively improve the quality of coal-based ethylene glycol products, reduce costs, and increase profits. For example, Shandong Hualu Hengsheng’s 500,000 tons per year ethylene glycol production facility using syngas as raw material has a scale that is more than twice that of existing plants; as a result, the investment required for this facility is lower, and its overall energy consumption is reduced by over 10% compared to existing plants. While most coal-based ethylene glycol manufacturers are operating with meager profits or even losses, this company is still able to achieve solid profits. Yao Yuangen said that the decline in international oil prices and the high levels of coal prices in China have reduced the cost advantage of coal-based ethylene glycol compared to the petroleum-based route. However, as the quality of coal-based ethylene glycol improves, its acceptance in the downstream polyester industry is increasing. As long as companies continue to enhance product quality and employ new technologies to reduce costs significantly, coal-based ethylene glycol will remain highly competitive. He suggested that companies prioritize the use of more stable, efficient, and low-cost technical processes ； Priority should be given to establishing integrated coal-ethylene glycol-polyester-textile projects in areas with abundant coal and water resources and low energy costs, in order to reduce risks and achieve higher profits.