19 April 2013 09:18 [Source: ICB]
Adipic acid (ADA) is a white, crystalline compound and is primarily used in the production of nylon 6,6. It is also used to produce polyurethanes (PUs), as a reactant to form plasticisers, lubricant components and polyester polyols. Feedstocks include benzene, cyclohexane (CX) and ammonia.
Key end-use products include automotive textiles, shoes and shoe soles. Other outlets are as a food ingredient in gelatines, desserts and other foods that require acidulation.
Asia's adipic acid capacity rose to above 1.8m tonnes/year by March 2013, of which China possesses the largest proportion, with around 1.52m tonnes/year.
Asia's dependence on imports from the EU and US gradually reduced in 2012 and 2013 as supply increased from the key China market. China's domestic producers are focusing on increasing their exports to other Asian countries through relatively low prices amid the increasing domestic supply.
However, higher feedstock costs coupled with weak demand eroded most producers' margins in 2012. As a result, most producers in Asia operated their plants at 50-70% to cope with difficult market conditions.
On the demand front, the global economic slowdown, especially in China, hampered downstream consumption of ADA for PUs and shoe soles. The market did not improve as strongly as expected after China's Lunar New Year on 9-15 February. End-users were cautious about buying cargoes and unwilling to build stocks given the uncertain market outlook.
Most end-users said that they will purchase only on a "need-to" basis and will not build stocks, considering the volatility of the market and weak fundamentals.
Asia ADA prices rose from $1,600-1,700/tonne CFR NE Asia in early January 2012 to $1,900-2,000/tonne CFR NE Asia in early April as feedstock values rose. But prices started to drop in the second quarter, reaching $1,530-1,580/tonne CFR NE Asia in late July, in line with the price crash in upstream energy costs and slow consumption.
However, ADA prices then rose all the way to $1,950-2,020/tonne CFR NE Asia by the end of March 2013 amid rising feedstock benzene prices, as suppliers had to raise prices to recoup margins.
Early this year, limited deep-sea cargo supply from the US and Europe also lent some support to buying sentiment.
Nevertheless, ADA's premium to feedstock benzene weakened in the second half of 2012 as a result both of high benzene prices and persistently weak demand in a slowing Chinese economy and of China's capacity expansion. From late July 2012 to early January 2013, Asia benzene prices rose from $1,120-1,160/tonne FOB Korea to $1,475-1,492/tonne FOB Korea, which significantly squeezed producers' margins.
As a result, most Asian suppliers had to operate plants at reduced rates and expected to recoup margins in 2013. Looking forward, most market participants say prices will be under pressure in the second quarter, given the increasing supply from China.
Most production is by the liquid phase nitric acid oxidation of a cyclohexanol-cyclohexanone mixture, also called ketone-alcohol oil. Another route is based on butadiene (BD), using carboalkoxylation.
Exposure to adipic acid irritates the eyes, nose and throat, as well as affecting the respiratory system. Adipic acid decomposes on heating, producing toxic and corrosive fumes of valeric acid and other substances.
The ADA market will face a double whammy of increasing supply and weak demand conditions in 2013.
In 2013, approximately 370,000 tonnes/year of ADA capacity are expected to start up in China, which will to a certain degree weigh on the market.
Consumption growth will slow down in 2013 in line with the economic slowdown in China and other Asian countries.
As a result, major suppliers are expected to continue to run their plants at reduced rates because of higher production costs and weak demand.
However, margins are expected to improve in 2013 as major producers opt to reduce output instead of reducing prices to promote sales, if high feedstock prices continue to erode their profits.
In the key China market, competition will become more fierce because of the supply glut. In addition, China will gradually switch to being an exporter rather than an importer as a result of the rising supply availability and low price advantage.
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