The primary market for epichlorohydrin (ECH) is the epoxy resins market. ECH is used in 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.
The global ECH market is broadly expected to track global GDP growth, as it has done previously, largely due to its widespread use in GDP-derived industries such as construction. ECH consumption is estimated to have been 1.5m tonnes in 2012 and will grow by 4.8% annually till 2017, according to market research group, researchandmarkets.com.
The global supply/demand picture has changed in recent years, with growing capacity in Asia replacing output from Europe, particularly in downstream markets such as epoxy resins.
According to data from European statistics agency Eurostat, EU imports of ECH in 2013 rose steeply from 2012. During the same period, exports from the EU to the rest of the world declined by 33%.
EU imports of ECH in 2012 totalled 697 metric tonnes, rising to 13,382 metric tonnes in 2013. Exports from the EU, however, fell from 59,350 metric tonnes in 2012 to 39,895 metric tonnes in 2013.
Traditionally, ECH prices track propylene prices, with a 0.7 cost pass-through, although the impact of oversupply of cheap Asian ECH has created a ceiling in European ECH pricing and negatively affected demand for European ECH.
Asian ECH can be turned into epoxy resins at a cheaper cost than European ECH.
The Asian oversupply has given way to weak pricing in the region and resulted in operating capacities being pared back or shelved as producers target higher prices.
European sources have indicated that Asian and European prices are now nearing parity and efforts to raise Asian prices are likely to have a positive impact on European ECH prices, although with some lag.
In March 2014, European ECH contract prices range from €1,620-1,680/tonne free delivered, Northwest Europe (FD NWE). In Asia, current ECH spot prices are $1,590-1,620/tonne CFR China Main Port (ISO-tank) and CNY10,200-10,300/tonne delivered East China (bulk).
ECH technology 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.
As downstream demand of ECH is largely driven by consumption of epoxy resins, which in turn is largely driven by construction activity, GDP growth estimates are key indicators for forecasting demand.
Across the 28-strong EU, GDP is estimated to expand by 1.5% in 2014 and by 2.0% in 2015, according to forecasts from the European Commission early in February. Across the 18-strong eurozone GDP is anticipated to rise by 1.2% in 2014 and by 1.8% in 2015.
Germany is widely expected to be the main driver behind the eurozone’s recovery in 2014 and is predicted to grow by 1.8%.
The strengthening of the GDP recovery in 2015 comes as the eurozone’s other three big economies, France, Italy and Spain, accelerate. Outside the euro area, Britain is experiencing recovery and GDP is forecast to grow by around 2.5% in both 2014 and 2015.
Nevertheless, pricing is also likely to play a key factor in ECH market growth and this is likely to be determined largely by Asian pricing and output. Producers in China, Japan and South Korea are all seeking price increases, some as much as $250/tonne, although negotiations have been ongoing for some time. The outcome of the price negotiations in Japan and South Korea would be likely to set the tone for the future ECH price trend in the Asian region, market participants said.