Tecnon (UK): BDO newcomers warned of investment pitfalls

29 September 2000 16:22  [Source: ICIS news]

MONTE CARLO, Monaco (CNI)--Potential investors in new 1,4-butanediol (BDO) projects were warned on Friday that profitable opportunities were very limited, despite strong forecast growth in demand.

Clive Galyer, a consultant with Tecnon (UK), told the Petchem 2000* conference here that BDO consumption will grow at the rate of 6%/year between 1998-2008, with derivatives tetrahydrofuran (THF) and polybutylene terephthalate (PBT) production growth as the major factors.

Demand is projected to rise from 610 000 tonne/year in 1998 to 815 000 tonne in 2003 and 1.09m tonne in 2008.

But BDO capacity is set to increase dramatically, he said, rising from 739 000 tonne/year in 1998 to 1.43m tonne in 2003 and 1.57m tonne in 2008. This 7.8% average growth rate, however, assumes the closure of some older Reppe technology units.

"Clearly, something has to give if capacity utilisation levels are to reach economic levels for all the plants operating through to 2008," he told delegates on the final day of the conference.

"Even assumptions of capacity closures [of the older Reppe units] included in the Tecnon forecasts for the supply/demand balances of BDO by 2008 still give only 70% apparent utilisation by that year," he noted.

Without these closures, capacity utilisation falls from 83% in 1998 to 57% by 2003.

But, as most of the BDO and derivative chain is captive to the integrated producers, opportunities for new entrants and for any potential newcomers are, said Galyer, restricted to:

• Competing with global players for merchant business of only 30% of the global demand for BDO
• Integrating downstream themselves to primary and secondary derivatives
• Making deals with major players to replace all or part of their existing and planned BDO/THF and gammabutyrolactone (GBLO) capacity
• Selling BDO capacity to a major player to replace future expansion intentions

Galyer predicted that the major players, particularly Germany's BASF, will continue to exert pressure on new BDO projects and co-projects by continuing integration downstream to restrict merchant sale opportunities, and continuing investment to bring to bear economy of scale pressures.

"A lot of careful thought is necessary before newcomers should enter the market," said Galyer. "Raw material availability alone is unlikely to be sufficient justification for investment."

*Petchem 2000 is organised by Tecnon (UK), part of the Tecnon Consulting World Network.

By: Neil Sinclair
+44 20 8652 3214

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