Investment-intensive sector sees prices halve; will there be a surplus of coal-based ethylene glycol?

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Investment-intensive sector sees prices halve; will there be a surplus of coal-based ethylene glycol? Author/Source: Huahua Net Coal Chemical Industry. Date: 2019-08-28. Clicks: 15. A few days ago, the first phase of a demonstration project aimed at utilizing coal in various ways to produce new chemical materials, specifically an ethylene glycol production facility with an annual capacity of 1.8 million tons, built by Shaanxi Coal Group, began operations in Yulin, Shaanxi. As the world’s largest coal-based ethylene glycol plant under construction, the project has attracted considerable attention since its inception, with a total investment of 21.9 billion yuan. Shaanxi Coal is by no means the only company to have invested heavily in the coal-based ethylene glycol industry. Reporters’ investigations revealed that alone in July and August, dozens of projects announced new progress – either by concluding contracts successfully, starting construction, or entering the trial operation phase – and all of them were key projects in their respective locations. This reflects the enterprises’ enthusiasm for investment and the local authorities’ emphasis on it. However, in sharp contrast to the enthusiasm on the upstream side, the market situation on the downstream side has been volatile. In the first half of the year, the spot price of ethylene glycol across the country continued to decline, and it has now dropped to around 4,500 yuan per ton. Compared to the high price of 8,000 yuan per ton a year ago, the price has dropped by over 40%, and there is no sign of a slowdown in this decline. With rapid development, some experts believe that the risk of overcapacity is beginning to emerge, and the industry needs to respond rationally. The coal-based route is competitive, yet prices at the downstream stage have been cut in half. Strong demand, large import volumes, and the inherent advantages of the coal-based route together have led to the widespread development of coal-to-ethylene glycol projects. The reporter learned that, as a typical major consumer country, China’s apparent demand for ethylene glycol is increasing year by year. In 2018, the total national demand reached 16.6 million tons, of which imports accounted for about 9.95 million tons; thus, the domestic self-sufficiency rate was less than half. “It is estimated that by 2020, China’s demand for ethylene glycol will reach 17.5 million tons, leaving a supply gap of around 9 million tons at that time. ”Wang Yu, head of the Energy and Chemicals Division at the Petroleum and Chemical Industry Planning Institute, believes that the reliance on imports will be difficult to reverse in the short term. Driven by this, projects on the order of millions of tons keep emerging. Apart from the traditional petroleum-based ethylene route, coal-based ethylene glycol is gaining momentum, with its production capacity accounting for over 40% of the total capacity. Wang Yu gave an example: at an international oil price of $80 per barrel, the cost of coal-based ethylene glycol in China is around 4,800 yuan per ton, while the cost of producing it through other methods exceeds 6,700 yuan per ton; the cost of imported ethylene glycol is approximately 4,100 yuan per ton. “Compared to imports, coal-based ethylene glycol has relatively weaker competitiveness, but it is highly competitive compared to traditional production methods. ” Several industry insiders also confirmed to the reporters that, due to suitable resource endowments, relatively simple production processes, and rapid technological advancements, the coal-based approach offers stable profitability; almost all companies that launched projects in the early stages achieved profits. Liu Yanwei, deputy chief engineer at the Petroleum and Chemical Industry Planning Institute, revealed that between 2018 and 2020, another 27 new projects for producing ethylene glycol from coal (syngas) were planned, with a total production capacity of 10.9 million tons per year. However, the trend of being once “popular” has recently seen some changes. According to Wind data, the national spot price of ethylene glycol has dropped from around 8,000 yuan per ton in July last year to about 4,500 yuan per ton at present, representing a decline of 40%. The third-party agency Jinchuang also stated that the price of ethylene glycol continued to fall in the first half of the year, with the market dropping below several key support levels; the price even reached new lows since 2016. “In the second half of the year, whether prices will continue to decline or emerge from this price trough has become a focus of market attention. ” Reliance on imports does not mean that there is no risk of overcapacity in the domestic market. On one hand, there is demand yet a shortage persists; on the other hand, prices continue to fall. What will be the future direction of this industry? For the numerous new projects being launched, has the market truly changed from a \"blue ocean\"? In the view of Cui Jun, an analyst at the China Information Research Institute for Chemical Industry, the above situations are not contradictory. “It is a fact that China has high consumption of ethylene glycol and has, for a long time, been dependent on imports. However, the presence of imports does not mean that there is no risk of overcapacity in the domestic market. On the one hand, the coal-based route faces competition from both imported products and the oil-based route; especially in certain downstream sectors, there is a preference for using traditional methods to produce ethylene glycol, so coal-based products cannot yet replace them completely. On the other hand, with such limited alternatives, as more and more projects are launched and development accelerates, there is also fierce competition in the field of coal-based ethylene glycol. ” In terms of upstream production, including both oil-based and coal-based routes, there are currently over 60 ethylene glycol projects under construction or planned in China, with an annual total capacity of nearly 30 million tons. These projects will begin operations on a large scale within the next 3 to 5 years. In other words, the current gap will be gradually filled. “This figure is extremely large, and capacity expansion is happening very rapidly. At the same time, the average operating rate of coal-based ethylene glycol last year was only around 51%. Why is this number so low? ”Yao Yuangen, director of the Applied Chemistry Research Center at the Fujian Institute of Research on the Structure of Matter, Chinese Academy of Sciences, hit the nail on the head. Furthermore, the limited awareness and acceptance in downstream markets also pose a risk of overcapacity. An industry insider who wished to remain anonymous admitted that, compared to petroleum-based products, although coal-based ethylene glycol has cost advantages, there are still differences in key factors such as product performance and impurity content; the quality of the two is not entirely equivalent, and companies are concerned that coal-based products could affect production. It is for this reason that downstream parties are more willing to accept the petroleum-based route. “As both are ethylene glycol products, the purchase price for coal-based ethylene glycol in the downstream market has long been lower than that of petroleum-based products, with an average price difference of 100–200 yuan. Even when it is adopted, the mixing ratio of coal-based ethylene glycol in downstream production remains low, at only 20%-30% at its lowest; some downstream producers refuse to use it at all. ”The person said. Faced with internal and external competition, projects first need to have their \"costs\" carefully calculated. With high demand and a significant gap, it is logical for the market to be optimistic about such projects, and it is normal for companies to show interest in them. We must also recognize that as production increases year by year, the factors supporting high ethylene glycol prices will become increasingly weak. In the future, coal-based ethylene glycol will undoubtedly be an industry subject to full market competition; those with better quality and lower costs will be more competitive. ”Based on the current situation, Wang Yu put forward a judgment. Wang Yu believes that, in addition to technical reliability, stable quality, and smooth integration with the market, the impact of raw materials on competitiveness will become increasingly important. “Companies that do not control their own coal resources and must rely on market purchases should be cautious about entering the ethylene glycol industry in the future. ” Han Hongmei, deputy chief engineer at the Petroleum and Chemical Industry Planning Institute, also said that as the pace of project completion and commissioning accelerates, subsequent projects should pay closer attention to changes in market supply and demand dynamics as well as competitive conditions, especially by carefully calculating costs. “I believe that, taking all cost factors into full consideration, if the total cost of the ethylene glycol project does not rank among the top 30% in the industry, it is not advisable to invest further in its construction. ” Regarding the project itself, Yao Yuangen told reporters that since the existing methods for producing ethylene glycol from coal are largely similar, and the equipment used is also homogeneous, technological upgrades will still have a direct impact on product output and yield; “It is essential to strive for continuous improvement in technology first.” Regarding the issue of acceptance, the downstream sector is shifting from resistance and price pressure to a current level of increased acceptance. “It is recommended that the downstream parties work together to conduct further tests to ensure the actual application of coal-based ethylene glycol technology in practical use. Establish **standards** for application testing and product inspection, analyze each ethylene glycol impurity individually, and identify the factors that affect product quality. ” “Even if a balance between production and consumption is achieved in the future, new projects can still be developed. Just as it is now, some traditional coal chemical projects are still being put into operation. When capacity is not saturated, projects with advanced technology and lower costs are more profitable ； Only when capacity approaches saturation and the entity possesses sufficient competitiveness can it cope with risks. ”Wang Yu said.