The primary market for epichlorohydrin (ECH) is the epoxy resins market. About 90% of ECH output goes into the manufacture of epoxy resins for surface coatings, castings, laminates and adhesives, as well as specialty resins for water treatment, paper treatment and ion exchange, to purify air and water.
ECH is also employed as a raw material for the manufacture of a multitude of glycerine derivatives used as plasticizers, stabilisers, solvents, dyestuff intermediates, surface active agents, pharmaceuticals and as intermediates for further synthesis.
Overcapacity in the main China market has resulted in several new ECH plants remaining idle after their completions in the past two years. Existing plants are also running at low rates estimated to be at 50% or less on average.
Producer margins were being squeezed by firm feedstock propylene costs so smaller producers, which are less cost-efficient, either shut down plants or were running them at low rates.
Furthermore, smaller producers tend to be less environmentally friendly in their production processes and are at risk from a crackdown by the Chinese government as the country steps up its efforts against pollution.
Meanwhile, ECH producers that use alternate feedstock glycerine intend to keep their operating rates low even though glycerine prices have been on a downtrend since Q4 2013. Producers are not seeing a large enough benefit from reduced glycerine costs and also do not wish to drag down ECH prices by increasing supply in a saturated market.
China produces nearly 60% of the total ECH output in Asia, according to industry estimates. As a consequence of the long supply in China, ECH imports into the country have been dwindling in recent years.
While exports from Asia, including China, have been limited, South Korean ECH is slowly but steadily making inroads into the European market because of a free trade agreement (FTA) between these two regions.
Demand from downstream epoxy resins in Asia has been relatively stable throughout the year, without any significant peaks or troughs, although the slowdown in the growth of the China economy has to some extent, dampened demand from the construction sector.
China domestic ECH prices have been trending within a tight range at an average of yuan (CNY) 9,500-10,500/tonne DEL (delivered) East China for most of the past 12 months since August 2013 as stable, albeit slightly subdued domestic demand, has put a lid on sellers’ attempts to increase prices on the back of firm feedstock propylene prices.
Meanwhile, domestic ECH prices in South Korea and Japan increased by $150-200/tonne in March and May 2014, respectively.
Import spot prices into China have inched up steadily in thin trade. Import prices have risen by $60/tonne to an average of $1,635/tonne CFR (cost & freight) CMP (China Main Port) in the one-year period since August 2013, a level not seen since October 2012.
ECH is essentially a derivative of propylene and chlorine that combines the reactivity of an epoxide group with the additional reactivity of a chloro-group on to a propylene backbone. There are currently three process routes used to produce ECH at an industrial commercial level – via allyl chloride, allyl alcohol and the newer glycerine route.
Propylene is more commonly used for ECH production in Asia including China, but the recent sprout of ECH plant start-ups and expansions in China use cheaper feedstock glycerine.
China’s ECH capacity is around 1.1m tonnes/year, a third of which is glycerine-based, while Advanced Biochemical (Thailand), a subsidiary of Solvay, has a 100,000 tonne/year glycerine-based plant, which makes up nearly a fifth of Asia ex-China’s total ECH production capacity.
To produce 1 tonne of ECH, the propylene requirement is roughly 0.6-0.7 tonnes, while the glycerine requirement is 1.1-1.2 tonnes
Chinese glycerine-based producers usually import crude glycerine and process it into refined glycerine in-house.
China domestic ECH prices are expected to stay range-bound at current levels in the near term as excess market supply would likely be weeded out of the system through plant shutdowns or reduced operating rates.
While some players are hopeful that downstream epoxy resins demand will pick up from late August onwards, in line with the traditional peak demand season from September to October, minor fluctuations in demand are unlikely to have much of an impact on ECH prices as producers could easily adjust their output to balance this out in a well-supplied market.