OUTLOOK ’18: China’s acrylic acid supply to rise, squeezing margins

SINGAPORE (ICIS)–China’s domestic acrylic acid (AA) prices are expected to come under pressure in 2018 as new supply will outstrip existing demand.

China domestic AA prices rose and fell sharply in 2017 based on supply-demand situation and overseas plant operations impacted by hurricanes in the US, while in 2018 it seems supply will be more and consumption little less, thus squeezing producers’ margins.

A total of 580,000 tonnes of new capacity is due to come on stream in the domestic AA industry in 2018, according to ICIS data.

Shandong Hongxin has confirmed to commission its 80,000 tonne/year AA unit, while Wanhua Chemical’s third line is less likely to come into operation.

Jiangsu Sanmu’s phase-two 160,000 tonne/year unit is planned to be launched in April 2018.

Shengke Chemical has huge likelihood to start its third line, while Shandong Nuoer is slated to operate its 80,000 tonne/year unit in May 2018.

Given that some expansion may not materialise, realistically some 310,000 tonnes of AA output will be added in China in 2018.

Crude AA is mainly used to produce acrylic ester, general AA and glacial acrylic acid (GAA). General AA covers derivatives such as water reducing agent and some acrylic esters, while GAA is the feedstock of superabsorbent polymer (SAP) and UV curing paint.

SAP demand grew rapidly in recent years, consuming near 90% of GAA, and the annual demand outlook is considerable on the back of increasing aging population, implementation of the two-child policy and popularisation of water absorbent material.

In 2017 domestic SAP capacity expansion was 108,000 tonnes, pushing the total capacity to around 1.3m tonnes, but hefty ramp-up in operating rates propped up upstream GAA prices and ensured high margins, widening the gap between general AA and GAA to a peak of yuan (CNY) 1,450/tonne, whereas normally it used to about CNY200/tonne.

Some downstream SAP producers increasingly showed resistance to high-priced GAA and instead preferred to buy cheaper AA and carry out rectification process though a simple distillation unit to obtain GAA inhouse to keep feedstock costs at check.

Meanwhile GAA supply will further get a boost when Shanghai Huayi’s 84,000 tonne/year GAA unit is put into operation soon.

Therefore, the price gap between GAA and general AA will return to the normal level of CNY200/tonne in 2018.

In terms of trade, AA imports into China in 2018 are expected to be subdued because of additional domestic supply, while exports are likely to decline too, as compared to 2017 as production in Europe and the US normalises.

Outlook article by Claire Gao