12 April 2013 09:58 [Source: ICB]
Ethylene oxide (EO) is primarily used as an intermediate. About 65% of global output is converted to monoethylene glycol (MEG) for polyester fibers, resins and antifreeze formulations, while more than 7% is used in diethylene glycol (DEG) and triethylene glycol (TEG).
The second-largest use is alkoxylates and ethoxylates for detergents. Other derivatives include ethanolamines, polyethylene (PE)/polyalkylene glycols, polyols, and glycol ethers. EO is also used as a fumigant, disinfectant and sterilant for medical products.
Macroeconomic weakness in Europe undermined EO demand in 2012, resulting in a fairly well-supplied market. The economic impact was greatest on those EO derivatives (EODs) that are heavily dependent on the automotive and construction industries.
In the ethylene glycol market, macroeconomic negativity created a tense second half of 2012 when buyers held back on purchases. Producers lowered capacities to fit more comfortably with demand, and traders avoided the risk of bringing in material.
The surfactants sector has proven to be comparatively resistant to the effects of the downturn, along with the agrochemicals sector, although the latter is highly seasonal.
A heavy slate of planned EO plant turnarounds has been scheduled for the second and third quarters of 2013, which is expected to tighten supply.
As EO is a dangerous chemical to transport, it does not move across regions, and therefore has a region-based focus. In Europe, there has been a general trend in recent years towards market consolidation, involving capacity losses, acquisitions and a focus on captive demand rather than merchant demand, for economic reasons.
However, in October 2012 a source at Shell Chemicals said that the company was considering whether to expand EO production capacity at its Moerdijk site in the Netherlands. The proposed expansion would include an increase in high-purity EO production capacity, the source said. Shell's Moerdijk facility currently has a nameplate EO equivalent (EOE) capacity of 305,000 tonnes/year.
The vast majority of EO contracts are formula-based, with price movement comprising 80-85% of the change in the monthly ethylene price. An average of 82% is taken for assessment purposes. The EO price includes a conversion fee over the cost of ethylene, which is negotiated at the beginning of the year.
Depending on the terms of individual contracts, the fee can be revised annually or fixed for several years at a time.
Conversion fees increased at the beginning of 2013 for a significant proportion of European contracts, by an average of €25/tonne for northwest Europe and €40/tonne for the Mediterranean. March contract prices for EO were assessed by ICIS at an increase of €41/tonne, bringing the high end of the assessed ranges to a record high level. Prices were assessed at €1,429-1,596/tonne FD (free delivered) NWE (northwest Europe) and €1,484-1,641/tonne FD Med (Mediterranean).
Global production is based on the direct oxidation of ethylene via air or oxygen, with oxygen generally preferred in larger plants as it gives higher yields and less downtime.
Ethylene and oxygen are passed over a silver oxide catalyst at 200-300˚C (392-572˚F) and 10-30 bar. The gases from the reactor are cooled and passed through a scrubber, where the EO is absorbed as a dilute aqueous solution. The EO then goes to glycol manufacture or to be purified for use in EODs.
Macroeconomic conditions are likely to be the key factor in determining market developments over the next few years. There is a growing trend in favour of focusing on EODs, although the consensus is that the downstream MEG market will be balanced to tight in 2013. A producer said this would be reflected in the EO market balance. A buyer said that EO supply should improve in 2014, but there will still be a potential for tightness.
Aside from Shell's proposed expansion at Moerdijk, no new capacity is planned in Europe. The gap between ethylene prices in Europe and the US means that producers of ethylene derivatives are struggling to maintain competitiveness. Market players hope there will be less volatility in the crude oil and naphtha markets this year than in 2012, which led to record adjustments and record-high monthly ethylene contract prices. However, ethylene prices will continue to be driven by upstream costs and the supply situation.
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