There is a severe mismatch between the production and sales of dimethyl ether, with two-thirds of the production capacity idle

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　　Since 2009, affected by the financial crisis and falling international oil prices, domestic dimethyl ether prices have also dropped significantly. The risks accumulated over the years due to excessive capacity expansion have begun to show up clearly. At present, many enterprises are operating at reduced capacity or have ceased production. Analyses suggest that dimethyl ether is currently facing serious market challenges; its applications are limited, and as a new type of clean energy source it lacks appropriate policy support. Difficulties in expanding the market will pose significant obstacles to the development of this industry. 　　1. Declining profits in dimethyl ether companies have led to shutdowns or partial shutdowns. With a large number of methanol production projects coming online in recent years, the domestic methanol market is facing a severe situation of supply exceeding demand. In 2008, the methanol production capacity was 26.555 million tons, while the actual production volume was 11.263 million tons; imports amounted to 1.434 million tons. The remaining capacity was 15.292 million tons, resulting in an average utilization rate of only 42.41%. 　　Dimethyl ether, as a downstream product of methanol, also suffers from severe overcapacity. In recent years, domestic companies have been optimistic about the prospects of the dimethyl ether market and have invested heavily in this industry, resulting in a domestic production capacity of over 6 million tons per year. However, in 2008, the demand for dimethyl ether was only 2.16 million tons, meaning that nearly two-thirds of the production capacity remained unused. 　　In 2008, as domestic energy demand continued to rise, international oil prices reached a peak of $147 per barrel, and the supply of liquefied petroleum gas became strained, which led to an increase in the market price of liquefied petroleum gas in the country. Dimethyl ether is popular in the field of blending with liquefied petroleum gas due to its physical properties, which are similar to those of liquefied petroleum gas. 　　However, affected by falling international oil prices and rising methanol prices, dimethyl ether producers are gradually facing difficulties. Since the fourth quarter of 2008, the price of dimethyl ether has continued to fall, dropping from a peak of 6,300 yuan per ton to around 3,000 yuan per ton. 　　According to Li Huairong from the Party Committee of the Coal Chemicals Branch of Shenhua Ningmei Group, methanol-producing enterprises are currently operating at a loss; the cost balance point for using methanol in coal chemical production is 2,100 yuan per ton, whereas the market price is around 1,560 yuan per ton. For many dimethyl ether manufacturers, a tough period has also set in at present; most of them are operating at less than full capacity. For strategic reasons, many of these companies have invested heavily in advance to ensure the proper operation of their coal chemical facilities. As dimethyl ether offers a higher return rate in the long term compared to methanol, the company invested 4.5 billion yuan in dimethyl ether to lay the foundation for future development in the coal chemical industry. 　　2. Poor market development severely hinders the growth of dimethyl ether. Some industry experts believe that although dimethyl ether is a clean fuel intended to be promoted for use, its limited range of applications and poor connectivity within the market have led to a rapid decline in demand for it. If these market obstacles are not overcome, the future of China’s dimethyl ether industry looks uncertain. 　　First, compared to the rapid growth in production capacity, the downstream market demand for dimethyl ether is saturated. In China, dimethyl ether is mainly used in the blending of liquefied petroleum gas. However, due to improper practices by many gas supply companies, consumers do not support the use of liquefied petroleum gas blended with dimethyl ether. At the same time, due to the limited growth rate in demand for liquefied petroleum gas, the demand for dimethyl ether in blended fuel applications also grows relatively slowly. Applications in co-firing account for about 90% of the total domestic demand for dimethyl ether. Moreover, since dimethyl ether manufacturers generally do not have a well-developed sales network, the sales channels are largely in the hands of petrochemical companies, leaving the manufacturers with little say as to how and how much to sell. 　　Second, the development of downstream applications is limited; liquefied petroleum gas accounts for over 90% of total demand, while the use in other chemical industries such as pharmaceuticals, fuels, and pesticides makes up around 10%. This also results in the dimethyl ether market being highly influenced by the prices of liquefied petroleum gas. If the liquefied petroleum gas market continues to decline, dimethyl ether will lose the vast majority of its market share. Currently, there is an excess capacity for dimethyl ether production, demand has reached saturation, and its main application area is limited. The high cost associated with raw material methanol, along with price constraints imposed by liquefied petroleum gas, puts dimethyl ether manufacturers in a difficult situation. 　　In 2009, most companies in the dimethyl ether industry will still face low operating rates and low profit levels. Looking at the entire industrial chain, if dimethyl ether manufacturers are unable to establish connections with upstream and downstream partners in a timely manner – with the upstream parties controlling the supply of raw material methanol and the downstream parties holding control over the sales channels for household gas – their development will face severe challenges due to market fluctuations. 　　Third, the price of dimethyl ether is greatly influenced by the prices of upstream energy sources and raw materials. According to Ding Yuzheng, head of the sales department at the Coal Chemicals Branch of Shenhua Ningmei Group, the international economic situation was improving in 2009, and international oil prices might soon rise to $70–80 per barrel, which could be beneficial for dimethyl ether manufacturers, leading to an increase in the price of dimethyl ether as well. At the **policy level, in 2008 the value-added tax rate on dimethyl ether was reduced; it now has the same rate of 13% as products such as liquefied gas, and dimethyl ether has been officially classified as an energy-related chemical product. Therefore, the upward trend in energy prices is undoubtedly a positive factor for dimethyl ether. But on the other hand, methanol is also the main factor affecting the cost of dimethyl ether. Rising methanol prices will directly lead to increased costs for dimethyl ether producers. At present, due to the **relaxation of restrictions on methanol imports, there is still over 5 million tons of methanol waiting to be exported to our country. If the price of imported methanol rises as international oil prices and shipping costs increase, the cost of dimethyl ether will inevitably increase significantly. 　　3. The promotion of dimethyl ether requires **more detailed support policies.** Given the current production situation, a number of dimethyl ether manufacturing facilities have been established across the country, with capacities ranging from hundreds of thousands to millions of tons. The 3 million-ton dimethyl ether production project in Ordos, Inner Mongolia, along with related facilities, which is being funded by companies such as China National Coal Energy Group and Sinopec, has been launched. The total investment amount is 21 billion yuan, and the project is expected to go into operation in 2010. Some industry experts estimate that by 2010, China’s dimethyl ether production capacity will increase by 9.82 million tons, bringing the total capacity to over 15.8 million tons. 　　The rapid increase in production capacity, coupled with little change in market demand, will have a serious impact on the development of dimethyl ether as a clean energy source in the coming years. Despite the large investments, market applications fail to inspire optimism among many companies. Some corporate analysts identify five reasons. 　　Firstly, because **the standard issues have not been resolved; currently, in the field of civilian liquefied petroleum gas, the proportion of dimethyl ether mixed in with liquefied petroleum gas ranges from 15% to 35%.** The lack of standardized guidelines has led to chaos in the market. Currently, dimethyl ether is used privately in applications such as plastic products, pharmaceuticals, and pesticides and fertilizers. However, the inclusion of more than 15% methanol or dimethyl ether in petroleum is highly toxic and can also affect the performance of automobile engines. 　　Secondly, automobile manufacturers and operators lack the motivation to develop new energy sources, believing that research and development in this area is already fairly advanced and that the market conditions are good. Without the support of appropriate policies, it is difficult to promote the use of dimethyl ether in vehicles. Thirdly, there is a general lack of awareness among the public; in fact, the production of dimethyl ether can save more than one-third of the energy required, but consumers are not willing to adopt it, which indicates that insufficient efforts have been made to promote the use of dimethyl ether as a clean energy source. 　　Fourth, domestic enterprises have few independent intellectual property rights for dimethyl ether production; their R&D capabilities are weak and production practices are not standardized. Key technologies are imported from abroad, resulting in a severe lack of development in new dimethyl ether products. 　　Fifth is the transportation issue; there are obstacles to transporting dimethyl ether from the northwest region to the southeast region. Currently, dimethyl ether is generally transported using liquefied petroleum gas tankers; transporting it by rail presents many difficulties, while road transport is too costly. 　　Industry experts call for **long-term planning and more detailed policies to support dimethyl ether enterprises. First, the key issues hindering the development of dimethyl ether at present are inadequate supporting measures, an immature market, and the need for a change in attitudes toward its use. **Dimethyl ether should be established as the leading alternative to petroleum, enabling its large-scale and industrialized use in **’s fuel development strategy, with comprehensive planning for large-scale production by domestic dimethyl ether manufacturers. Secondly, standards for the use of dimethyl ether should be established as soon as possible. Standards regarding the use, storage, and transportation of dimethyl ether also need to be introduced promptly in order to create a complete set of standards for this substance; otherwise, the issues related to market acceptance will remain unresolved. In the automotive sector, there is currently no **standard** specifying the purity level of dimethyl ether that is considered safe; therefore, efforts should be accelerated to develop standards related to dimethyl ether vehicles, thereby providing essential technical support for the industrialization of such vehicles as well as their future commercial use and widespread adoption. Third, **support should be provided for the development of dimethyl ether to meet market demands, promote its large-scale production and industrialization, accelerate the pilot use of dimethyl ether in cities with favorable conditions such as Shanghai, Guangzhou, and Shenzhen, and establish supporting measures for the dimethyl ether industry chain.