INSIGHT: Moving down the chain to capture growth and value

18 June 2010 17:12  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Chloralkali producers and, one might expect, their principal customers, take it in their stride - or at least seem to.

The demand pull on the twin products from the electrolysis of brine is very different. If the paper business is buoyant then producers have to hope that the demand pull for chlorine into construction via the polyvinyl chloride chain is healthy, otherwise they could have problems. Prices of chlorine and caustic will reflect activity in very different parts of the economy.

This is because companies look at the output and economics of electrolysis plants in totality. Production economics are based on the electrochemical unit, or ecu, which is the combined value of one tonne of chlorine and 1.1 tonnes of caustic soda.

In a similar position, shouldn’t makers of phenol and acetone work harder at taking a similar approach?

For every one tonne of phenol produced you are left with 0.62 tonnes of acetone. Phenol demand is growing strongly; but that for acetone is not.

The disparity will add colour to acetone in the way it has done in the past and create problems for producers and consumers alike. The way in which prices for the two products are established, will only help exacerbate potential problems.

After a year of difficulty - with end-use demand weak and production issues adding to price volatility in phenol/acetone - the world has turned.

Polycarbonate demand is much stronger, even though consumers buy fewer CDs and DVDs made from polycarbonate than they once did.

Acetone, by contrast, is a much more ‘stable’ product. Some 40% of global output goes into solvents, 24% to make methyl methacrylate, 20% into bisphenol A and 14% into a range of other uses.

Mature and declining end use markets for the chemical will have an impact on the entire phenol chain.

Larger consumers are recycling more acetone. There are new routes to methyl methacrylate that avoid the chemical - one uses ethylene, another, butylenes. Solvent use is mature growing only with the industrial economy.

The ICIS phenol/acetone conference in Berlin this week pointed up some potential problems for these chemical chains.

Phenol use is expected to expand with increased polycarbonate demand in fast-growing China but what then will be done with excess acetone?

This is a problem for phenol/acetone producers not simply because of the disparities that will exist when they have excess acetone to sell. It is a difficult problem because while they are able to negotiate acetone prices based on the price of propylene and market conditions their price for phenol is firmly fixed to benzene.

Excess acetone could prove to be a real headache: industry analysts expect there to be a 100,000-200,000 tonne/year global surplus by 2015.

Acetone could be recycled by the producer- back to propylene or to cumeme. It could even find its way into the gasoline pool - although it is said to corrode important engine parts.

A more interesting use would be conversion to isopropanol (IPA), which is widely used as a solvent, an intermediate for paints and inks, and in lacquers, thinners and household products.

IPA is potentially a faster-growing product if you consider solvent use in the growing semiconductor industry in Asia. Currently about 1.8m tonnes are made globally each year.

Of great interest is the price spread between it and acetone of some $300/tonne. The cash cost of making IPA, albeit with a secure source of hydrogen, is between $100 (€81) and $150/tonne.

Adding value down the chain appears to be a real option for phenol/acetone players and a way in which they might be able to gain a little more control over their markets.

An IPA plant fed by acetone was brought on-stream by Novapex in France at the start of this year. South Korea’s LG is converting acetone to IPA.

Delegates in Berlin expected more producers to enter the fray.

($1 = €0.81)

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By: Nigel Davis
+44 20 8652 3214

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