11 January 2013 11:32 [Source: ICB]
Ethylene glycol (EG) is a colourless, odourless, viscous, hygroscopic sweet-tasting liquid. It is very soluble in water, ethyl alcohol, ethers and markedly reduces the freezing point of water.
There are three grades of ethylene glycol: fibre, industrial and antifreeze.
Minor applications include de-icing fluids and surface coatings, and as an ingredient in photographic developing solutions, hydraulic brake fluids, some unsaturated polyester resins (UPR), and inks. EG can also be used to make glycol ethers.
Europe is structurally reliant on EG imports and for 2013, buyers and sellers expect a balanced-to-short market.
Macroeconomic negativity created a tense second half of 2012 when buyers held back on purchases. The PET bottling industry performed poorly during the traditional high summer season and the antifreeze sector also lagged behind in its usual restocking period before the winter.
Producers lowered capacities to fit more comfortably with demand, and traders avoided the risk of bringing in material. Where possible, all sides kept just enough EG to get by. Players kept a close eye on a volatile Asia - the dominant market - and currency exchange rates, resulting in sporadic rushes on product in Europe.
2012 ended amid confusion, with year-end destocking reducing demand further, but the potential rise in January pricing creating sparks of interest from customers.
Europe's monoethylene glycol (MEG) January contract price looked set to be agreed higher than December's €1,048/tonne FD (free delivered) NWE (northwest Europe). This may encourage Middle East exports to Europe rather than to Asia, especially as two major production outages in Saudi Arabia tighten supply.
Spot prices in the high €800s/tonne CIF (cost, insurance and freight) and FCA (free carrier) NWE dominated the 2012/2013 cusp, partly because of a strong bull run in Asia. Residual bulk availability in the low to mid-€800s/tonne lingered in early January.
Economic uncertainties before what should have been the peak PET summer season prompted a slump in MEG, causing a drop in prices over July and August. Values then peaked in September and drifted down towards the end of the year. Average 2012 margins were the lowest since 2009.
Ethylene oxide (EO) is first produced by the direct oxidation of ethylene in the presence of oxygen or air over a silver oxide catalyst. A crude EG mixture is then produced by the hydrolysis of EO with water under pressure. Fractional distillation under vacuum separates the MEG from the diethylene and triethylene glycols (DEG and TEG).
Japan's Mitsubishi Chemical developed a catalytic process that employs a phosphorus-based catalyst for converting EO to MEG with very little formation of the higher glycols. The UK's Shell Chemicals acquired exclusive rights to this process and licenses a combined EO/MEG technology as an integrated Omega (only MEG advanced) package.
Omega is claimed to have an MEG selectivity of more than 99%, compared with around 90% for conventional non-catalytic processes. Plants where the Omega process is used include Lotte Daesan (in South Korea), PetroRabigh (Saudi Arabia) and Shell (Singapore).
So much of what happens in EG depends on difficult-to-predict economic conditions. The consensus is that MEG in Europe will be balanced to tight. On the face of it, MEG will struggle to meet additional PET needs. The situation may change pending potential PET plant closures caused by market conditions.
The downstream European PET market is in limbo as producers decide how best to limit losses in the face of new capacity affecting Europe and continued upward pressure from raw materials. New PET capacity is being introduced at a particularly sensitive time for the economy and this is compounding the likelihood of existing capacity closing in 2013.
Market players hope there will be less volatility in the crude oil and naphtha market than in 2012, which led to record adjustments and record high monthly ethylene contract prices, affecting the downstream MEG price. But ethylene prices will continue to be primarily driven by upstream costs and the supply situation, rather than the strength of demand.
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