China ECH makers keep output low despite glycerine price fall

Focus story by Matthew Chong

SINGAPORE (ICIS)–China’s epichlorohydrin (ECH) producers intend to keep running their plants at reduced capacity to prevent prices from falling further, despite declines in cost of feedstock glycerine, market sources said on Friday.

The average run rate for most large Chinese glycerine-based producers is 60-80%, with one producer running its plant at below 20% of capacity, they said.

“The cost reduction from glycerine price declines has yet to be reflected in our books and we have no intention to increase [our plant] operating rate in the near term because we do not want to drag down ECH prices in a saturated market,” said a major Chinese glycerine-based producer.

ECH prices have fallen for six consecutive weeks to average yuan (CNY) 9,900/tonne ($1,597/tonne) DEL (delivered) east China on 15 July, from a near five-month high of CNY11,050/tonne DEL east China in early June, according to ICIS pricing data.

Prices may have found the floor, with producers that use propylene as feedstock for production not inclined to cut offers.

“It is unlikely that [local propylene-based] producers would reduce their prices by much more because our margins are thin,” said a source at a major Chinese propylene-based producer.

Propylene is more commonly used for ECH production in China, but recent ECH plant start-ups and expansions in the country use glycerine, which is a cheaper feedstock.

To produce a tonne of ECH, the propylene requirement is roughly 600-700kg, while the glycerine requirement is 1.1-1.2 tonnes.

China’s ECH production is estimated at 1.1m tonnes/year, a third of which is glycerine-based.

Propylene prices have climbed by over 6% since end-March to average $1,460/tonne CFR NE (northeast) Asia on 16 July, according to ICIS data.

Crude glycerine prices in flexi bag – at purity level of around 80% – shed 26% over the same period to $285/tonne CIF (cost, insurance, freight) CMP (China main port), which was last seen in January 2012.

Chinese glycerine-based producers usually import crude glycerine and process it into refined glycerine in-house, for use as feedstock in the production of ECH.

There is limited supply of crude glycerine in the domestic market and importing refined glycerine costs more, market sources said.

Major glycerine-based producers in China include Jiangsu Yangnong Chemical Group and Yihai Kerry, a subsidiary of Wilmar International, while the only glycerine-based producer in Asia outside China is Advanced Biochemical (Thailand), a subsidiary of Belgian producer Solvay.

($1 = CNY6.20)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections