OUTLOOK ’18: Changing fundamentals bring uncertainty to China NBA market

27 December 2017 06:12 Source:ICIS News

SINGAPORE (ICIS)--The n-butanol (NBA) market in China is heading to further uncertainties in 2018 because of new dynamics at play including government back environmental inspections and somewhat variable downstream demand.

The NBA market in China experienced quite some turbulence in 2017 owing to supply-side reform, a combined initiative of the government and the industry to improve the quality and quantity of economic growth.

In the first half of 2017 NBA prices were at yuan (CNY) 500/tonne but climbed up to CNY2,000/tonne in the second half of the year because of tight supply.

NBA prices in China, 2017

Some market participants believe that the fluctuation in 2017 were not normal but others say that the environmental inspections and supply-side reform will become the new normal and continue in 2018.

China NBA market in 2018 will see a growth in capacity whereas downstream demand will depend on how many of such plants eventually get build in the year.

CNOOC Shell plans to start up its 106,000 tonne/year unit in March 2018 and Jiangsu Huachang plans to start up its 80,000 tonne/year unit in May 2018.

As a result, NBA supply will increase by 17,000 tonnes every month if the two units run smoothly.

On the demand side, Shandong Hongxin plans to restart its 80,000 tonne/year butyl acrylate unit in December 2017. The unit has been off line for more than two years.

Wanhua Chemical plans to start up its 120,000 tonne/year butyl acrylate unit at the end of 2017 or in early 2018.

The two units will consume around 10,000 tonnes of NBA every month, according to ICIS.

Therefore, the market may see tightness in the first half of 2018, but experience oversupply in the second half of the year.

What complicates the supply-demand balance is whether a major downstream unit will be completed in 2018, or not.

Taixing Jinjiang’s under construction 450,000 tonne/year acetate and 100,000 tonne/year butyl acrylate unit is waiting for environmental approvals.

Sources at Jiangmen Handsome - Taixing Jinjiang is its wholly-owned subsidiary - told ICIS that 150,000-200,000 tonnes/year of capacity at the 450,000 tonne/year acetate unit would produce butyl acetate and the producer would try to start up the unit in 2018.

Taixing Jinjiang now has a 100,000 tonne/year butyl acetate unit which consumes around 5,400 tonnes of NBA. The consumption will increase by around 15,000 tonnes if the new project comes on stream.

In addition, Jiangmen Handsome has to relocate its acetate and butyl acrylate unit in Jiangmen, Guangdong because of the environmental requirements.

The producer can produce 80,000 tonnes/year of butyl acrylate and 180,000 tonnes/year of butyl acetate, with total NBA consumption at 13,000 tonnes/month.

The relocation of Jiangmen Handsome’s units and the start-up of Taixing Jinjiang’s new projects will not only lead to an increase in NBA consumption, but also a different market structure.

This, combined with the start-up of CNOOC Shell’s new capacity in Huizhou, Guangdong in 2018, brings uncertainties to domestic NBA supply.

The change in China NBA supply

The change in China NBA demand

The start-up of the first NBA unit in south China and the relocation of the largest downstream plant in the same region bring a big challenge to the NBA market and will change pricing and trade flow.

NBA prices mainly increased in 2017 because of a significant decrease in supply. Taking the east China market as an example, there is a negative correlation between the operating rate and average price.

Domestic NBA prices and operating rates, 2017

NBA prices in east China hit the lowest level of the year in mid-April 2017 at CNY5,925/tonne ex-tank, with operating rate at around 75%.

Prices hit the highest level of the year in late August 2017 at CNY8,175/tonne, with operating rate below 50%.

PetroChina Jilin Petrochemical, Sinopec Qilu Petrochemical and Lihuayi Weiyuan shut down their units for maintenance in May, with Jilin Petrochemical and Qilu Petrochemical postponing their restart dates. Anqing Shuguang and Jiangsu Huachang carried out maintenance in July-August.

Maintenance at domestic NBA units in May-August 2017

Producer Capacity (10,000 tonnes/year) Type Time Production losses
PetroChina Jilin Petrochemical 24 Scheduled 2017/5/3-2017/7/19 25,000 tonnes
Lihuayi Weiyuan 8.5 Scheduled 2017/5/4-2017/5/16 3,250 tonnes
Sinopec Qilu Petrochemical 8.5 Scheduled 2017/5/15-2017/6/28 6,750 tonnes
Anqing Shuguang 15 Scheduled 2017/7/10-2017/8/4 5,460 tonnes
Jiangsu Huachang 10 Scheduled 2017/8/7-2017/9/2 8,400 tonnes
Source: ICIS

The NBA production losses caused by maintenance totalled around 50,000 tonnes in May-August.

Meanwhile, Shandong Luxi Chemical cut its operating rate to the lowest level because of the syngas supply issue, which caused around 30,000 tonnes of production losses.

In the overseas market, PETRONAS shut down its 125,000 tonne/year NBA unit on 16 July for two months of maintenance, which caused around 23,000 tonnes of production losses. Malaysia is one of China’s major overseas spot NBA suppliers.

In addition, producers in Europe and the US also cut their output more or less.

According to the statistics from the customs, monthly NBA import volumes in China have been below 20,000 tonnes since April, with a historical low seen in July, only at 9,800 tonnes.

Total import volumes in January-October decreased by 10% year on year.

NBA import volumes, 2016-2017

The significant decrease in domestic and overseas supply was the biggest uncertainty in 2017, which led to higher prices and margins.

However, in 2018, the uncertainty is the changing supply and demand in the domestic NBA market, which will bring both challenges and opportunities to the market.

Outlook article by Sikee Shi

By Sikee Shi