Asia chemical profile: MPG

25 June 2012 00:00  [Source: ICB]

USES

Asia MPG capacityThe primary outlet for monopropylene glycol (MPG) is unsaturated polyester resins (UPRs), which are used in surface coatings and glass fiber-reinforced resins. The second-largest consumer is functional fluids such as deicers and anti-freeze.

MPG is also used in plasticizers and hydraulic brake fluids. Other uses are in nonionic detergents and as a humectant in the pharmaceutical, cosmetics, animal foodstuffs and tobacco industries. It is also an excellent solvent and extractant.

SUPPLY/DEMAND

Year-on-year MPG demand in Asia has grown at an anaemic rate in 2012 amid the current economic downturn, which led to a market oversupply by the second quarter.

Since the beginning of the year, MPG inventory levels across the region have been inching up as buying momentum slowed on the back of reduced production rates at key downstream sectors, such as in the manufacture of UPRs. By June 2012, it was estimated that UPR factories in China - a key growth country in Asia - were only running at around 50% of capacity as the government implemented measures to tame inflation and growth.

Faced with sluggish end-user demand on the one hand and coming under pressure from high input costs from feedstock propylene oxide (PO) on the other, smaller MPG facilities across China, particularly those with the weakest market share positions, have been forced to cut output or even to shut their plants temporarily.

For the second half of 2012, market sources believe that a slowing global economy will continue to be a drag on recovery in demand for downstream chemicals.

A few local MPG producers in China voiced concerns that planned investments may not be undertaken unless there is a substantial improvement in their profit forecasts. MPG demand growth forecasts for 2012 have been cut to single digits from initial projections of 15-20%, according to a survey of the industry.

PRICES

Regional producers have been lowering MPG prices in the second quarter amid destocking activity prompted by continuing soft global demand and a decline in the prices of upstream crude oil and propylene.

Driven by weak demand, prices for bulk industrial-grade propylene glycol (PGI) cargoes in Asia have fallen by around $200-300/tonne (€158-237/tonne), or 15-20%, on a quarterly basis. Import prices in northeast (NE) Asia were $1,400-1,550/tonne CFR (cost & freight) in mid-June. PGI suppliers in the region also face strong price competition from cheaper, lower-quality alternatives in China produced via the dimethyl carbonate route.

The prices of drummed US pharmaceutical grade (USP) cargoes have also retreated, albeit at a slower pace of around $100-150/tonne, or 8-9%, as a result of comparatively firmer fundamentals. USP prices in NE Asia were $1,800-1,880/tonne CFR in mid-June. Demand from the downstream food, cosmetics and other consumer staple industries is said to be relatively stable.

Market participants said downside risks still remain for MPG prices in the coming months because of slackened demand, the uncertainty of feedstock costs and macroeconomic worries. A few suppliers also commented that there are opportunities for MPG prices to rebound in September or October, when the market emerges from the seasonal lull in demand from June to August.

TECHNOLOGY

MPG is produced by the hydration of PO, and the reaction also produces dipropylene glycol, tripropylene glycols and small quantities of higher glycols. MPG production is driven by PO availability and extra MPG can be produced to balance PO.

There has been a lot of interest in producing MPG from renewable resources such as glycerin - a by-product in biodiesel manufacture.

OUTLOOK

Asia MPG capacityThe weak pricing spreads and reduced profitability that have prevailed during the past few months have prompted MPG suppliers to cut operating rates in order to reduce market supply and mitigate downside risks to their profitability. However, lingering global economic uncertainty - particularly with regard to the eurozone debt crisis and slowing growth in China - may delay a pick-up from the third to the fourth quarter, market sources said.

Any growth in Asia is also likely to be limited this year as various economic indicators, including consumption and output in China, the regional demand driver, have been weak in the first half.

Nonetheless, global producers are undeterred by the cautious sentiment looming over the market. For instance, US producer Dow Chemical's new MPG plant in Map Ta Phut, Thailand, which has a nameplate capacity of 150,000 tonnes/year, is on track to start production in January 2013. The project is a joint venture with Thailand's Siam Cement.

In addition, South Korea's SKC Group says it is aiming to double MPG capacity at Ulsan to 200,000 tonnes/year by 2016.


Author: Elaine Burridge and Jingyi Chan



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