The market will remain at low levels; will coal-based ethylene glycol face tough times?

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The market will remain at low levels; will coal-based ethylene glycol face tough times? Author/Source: China Securities Journal Date: 2019-08-05 Clicks: 7 On August 1, the “Ethylene Glycol Market Sub-forum” as part of the Global Oil and Chemical Industry Economic Situation Analysis Conference was held in Yantai, Shandong. Representatives from relevant industry associations, enterprises in the ethylene glycol supply chain, and financial institutions gathered to discuss the current market conditions and industry characteristics of ethylene glycol. According to the data, the national spot price of ethylene glycol dropped from around 7,600 yuan per ton at the end of July 2018 to around 4,500 yuan per ton by the end of July 2019, a decrease of 40%. Given that a large number of new projects are still scheduled to come online in the next two years, some speakers believe that \"the price of ethylene glycol is likely to remain low during 2019–2020, and companies should be prepared to go through tough times.\" In addition, domestic coal-based ethylene glycol projects have seen rapid development in recent years, with significant progress made in terms of both technology and production scale, gradually becoming a focus of attention within the chemical industry. On the demand side, growth remains generally stable. Reporters have learned that the polyester industry is the most important downstream sector for ethylene glycol, with over 87% of all ethylene glycol currently being used in polyester production ； And the product with the highest share in polyesters is polyester. Due to advantages such as low cost and high spinnability that natural fibers cannot match, polyester is widely used in the apparel textile industry, and demand for it continues to grow. According to experts from Sinopec’s Economic and Technical Research Institute, since 1950, the consumption of natural fibers has remained relatively stable, while the consumption of synthetic fibers has shown a rapid increase. By 2020, the world’s population will have risen to 7.76 billion, with per capita consumption of synthetic fibers exceeding 13.5 kilograms; the total consumption amount will for the first time exceed 100 million tons. Polyester currently accounts for over 75% of the total consumption of synthetic fibers. It can be said that polyester is not only the main driver of growth in the synthetic fibers sector but also a key factor supporting the development of the ethylene glycol industry. In China specifically, from 2016 to 2018, the apparent demand for ethylene glycol in the country maintained a steady upward trend. Yang Qianli, general manager of Shanghai Yijing Industry, noted that in 2018 China’s apparent demand for ethylene glycol was 16.6 million tons, of which 9.95 million tons were imported. In contrast, the country’s total domestic production was only around 6.65 million tons, resulting in a self-sufficiency rate of just 40%, which remains relatively low. It appears that there is still room for growth in domestic demand for ethylene glycol. On the supply side: intensified competition from imported products. At the conference, it was learned that during the 12th Five-Year Plan period, China’s petrochemical industry continued to develop rapidly, as evidenced by three aspects: first, new naphtha-ethylene complexes were continuously put into operation, and the scale of the associated ethylene glycol production facilities was relatively large ； Second, domestic methanol-to-olefins projects and facilities for producing ethylene glycol from purchased ethylene have been gradually built and put into operation ； Thirdly, there are new plants for producing ethylene glycol from coal/syngas. Currently, there are over 60 such ethylene glycol projects under construction or planned in China, with a total production capacity of nearly 30 million tons. The scale of these plants is continuously increasing, and most of them are scheduled to come online between 2018 and 2025, resulting in a rapid growth in domestic production capacity. In particular, in 2018, a total of 2.12 million tons of new ethylene glycol production capacity was added throughout the year, including a 400,000-ton project by CNOOC in Huizhou and a 200,000-ton project by Yangquan Coal in Pingding. Except for the CNOOC Huizhou project, which uses a petroleum-based process, all other projects employ a coal-based process. The simultaneous commissioning of these new facilities led to a 25.57% increase in ethylene glycol production capacity over the course of a year, **which reduced market expectations regarding ethylene glycol prices. Yang Qianli said that although no new facilities were put into operation in China during the first half of 2019, total production continued to show an upward trend. “In the first half of 2019, the production of coal-based ethylene glycol was 1.512 million tons, representing a growth of over 52% compared to the first half of 2018 ； The production of ethylene glycol from oil (including MTO) was 2.465 million tons, an increase of 17.9% compared to the first half of 2018. ”Reporters also learned that there are currently over 60 ethylene glycol projects under construction or planned in China, with a total production capacity of nearly 30 million tons. It is estimated that an additional 6 million tons of capacity will be added by around 2020, and most of the remaining projects are scheduled to come online by 2025. The pressure exerted on ethylene glycol prices due to this expansion is likely to persist for some time. Abroad, the period from 2019 to 2023 was one of rapid expansion of global production capacity; during this time, companies such as SASOL and MEGlobal in the United States, as well as Kayan Petrochemicals and Jubail Petrochemicals in Saudi Arabia, planned to put several new production facilities into operation. Experts from Sinopec’s Economic and Technical Research Institute say that over the next five years, an additional 5.29 million tons of ethylene glycol production capacity is expected to be added abroad, with an average increase of around 1 million tons per year. North America and the Middle East are the regions where the most new production capacity will be added, and traditional oil-based production methods will still be the dominant approach. He also pointed out that, thanks to advances in shale gas extraction technology and proximity to oil sources, ethylene glycol produced in North America and the Middle East still enjoys a significant cost advantage in terms of production costs. Currently, domestic production is not sufficient to meet demand, and the rapid increase in ethylene glycol imports has intensified price competition in the domestic market. According to statistics, China’s total imports of ethylene glycol in 2018 were 9.8 million tons, an increase of 1.08 million tons compared to the previous year, representing a year-on-year rise of 12.4%. With little change on the demand side, the simultaneous commissioning of multiple production facilities in China, coupled with a continuous increase in imports, has led to significant growth on the supply side, which is bound to put pressure on ethylene glycol prices. Coal-based ethylene glycol: vast potential. China’s unique situation of having abundant coal but limited oil resources necessitates an expansion of the use of coal in the chemical industry. During the expansion of ethylene glycol production since 2018, what stood out the most was the large-scale commissioning of coal-based ethylene glycol production facilities. According to statistics, in 2018, the new production capacity for coal-based ethylene glycol was 1.72 million tons per year, accounting for 81.13% of the total new production capacity of ethylene glycol that year. As of April 2019, the actual production capacity for coal-based ethylene glycol had reached 4.32 million tons per year; in addition, another capacity of over 7 million tons per year was expected to come online by the end of 2022. Yang Qianli estimates that domestic coal-based ethylene glycol production facilities will reach an annual capacity of 10 million tons in three years. Together with oil-based ethylene glycol production, this will be sufficient to meet about 70%-80% of domestic demand, thereby **reducing China’s reliance on imported ethylene glycol. With the continuous improvement and optimization of related production technologies, the quality of coal-based ethylene glycol has now met the standard requirements of downstream manufacturers. It is widely used in the production of polyesters, bottle chips, short fibers, and filaments, with the proportion of this material in such applications increasing to as much as 70%-80%. Yang Qianli pointed out that when deciding on the proportion of coal-based ethylene glycol to use, polyester manufacturers no longer consider only technical requirements; instead, they take into account various factors such as production scale, market prices, process equipment, service life, and marketing strategies. However, some experts say that at present, most companies use only 20%-30% coal-based ethylene glycol in their production processes, and the unstable supply of coal-based ethylene glycol is the main factor limiting its broader use. Polyester manufacturers need a stable supply of raw materials to ensure production and sales, but due to the low market prices since 2019, the operating rate of coal-based ethylene glycol production facilities has remained below 60%, which prevents a consistent and stable supply of materials. Many of the experts present agreed that the large-scale and high-capacity operation of coal-based ethylene glycol production facilities is a crucial prerequisite for supporting their future development. In light of the current market conditions characterized by low prices and fierce competition, Yang Qianli put forward his own thoughts and suggestions regarding both the raw material side and the product side of coal-based ethylene glycol production. On the raw material side, he believes that “reducing costs is the key to survival.” Even if oil prices rise to $70 per barrel, the production cost of ethylene-based ethylene glycol remains lower than that of coal-based ethylene glycol; therefore, relevant companies need to employ process innovation and refined management strategies to further reduce the costs associated with coal-based ethylene glycol production. The reporter learned that there have been some new developments on the raw material side recently, with some companies beginning to try using waste gas or coke oven exhaust as raw materials for the production of ethylene glycol. This technical approach still faces challenges in terms of gas flow rate, pressure stability, and exhaust gas purity, but if it can obtain long-term stability certification, it will help reduce the production costs of coal-based ethylene glycol plants that are built in the future, thereby enhancing the competitiveness of this technical route. On the product side, coal-based ethylene glycol plants equipped with methanol production lines exhibit considerable flexibility. Such devices can adjust their product structure flexibly according to market conditions; for example, when the price of ethylene glycol is low, production of ethylene glycol is reduced while the production of methanol is increased, and vice versa. Currently, plants such as Xinhang and Yigao already possess such capabilities, and many subsequent plants have also incorporated the concept of \"co-production of alcohols\" during their investment and technical evaluation phases. In addition, the “PJ-EG cogeneration technology” is also continuously evolving. If a set of equipment can produce products of multiple varieties according to different circumstances, it will greatly enhance the ability of coal-based ethylene glycol manufacturers to withstand price fluctuations and adapt to market changes. “Coal-based ethylene glycol has made ‘outstanding contributions’ to alleviating supply shortages, reducing production costs, and enhancing the competitiveness of China’s polyester fiber manufacturers; its future application prospects will undoubtedly present both challenges and opportunities. It is believed that the coal chemical industry can prove that the coal-based ethylene glycol route is a path that can be pursued successfully. ”Yang Qianli said.