OUTLOOK ’18: China biofuel promotion may hit domestic MTBE market

SINGAPORE (ICIS)–China’s methyl tertiary butyl ether (MTBE) market may come under pressure by increasing domestic supply this year, as well as softening demand amid the Chinese government’s call for nationwide use of ethanol fuel.

Domestic MTBE prices went through large fluctuations during 2017.

Prices in Shandong hit their bottom on 23 June, at yuan (CNY) 4,600/tonne, as demand for gasoline blending had remained tepid since May when state-owned refiners suspended gasoline purchase from the spot market to shed inventories.

The highest level in the year was recorded at CNY5,850/tonne in Shandong on 8 November, as market sentiment was boosted by rising upstream crude values.

In 2018, domestic MTBE capacity is expected to grow at a reduced rate of 2% to around 18m tonnes/year.

These new units will be part of the respective companies’ integrated projects, with most MTBE output reserved for their captive consumption.

Still, a notable increase will be seen in China’s MTBE output due to a slew of unit start-ups during the latter half of 2017.

Meanwhile, the country’s imports may continue to shrink in this year in response to ampler domestic spot availability.

China took in 170,600 tonnes of MTBE in the first 10 months of 2017, down by 53.7% year on year, according to China Customs.

As an octane booster, demand for MTBE from the gasoline blending sector may rise further as the country plans to implement GB (national standard)-VI specifications in gasoline nationwide by the end of 2018.

The fuel quality upgrade is likely to drive up the proportion of MTBE in gasoline blending, as the content of other octane boosters including aromatics and olefins will be reduced.

However, state authorities also proposed to promote the use of ethanol gasoline in China by the end of 2020, which is likely to slow domestic MTBE consumption in traditional gasoline blending.

In such case, ethanol will be increasingly used as an additive in gasoline, replacing MTBE.

Some refiners have started to direct more MTBE output to the production of chemicals including methyl methacrylate (MMA), isobutene and butyl rubber.

At present, over 90% of MTBE goes to the gasoline blending sector, while less than 10% is used in chemical production in China.

Some refiners, meanwhile, consider modifying their units for other production.

Heyun Group, for example, has refitted one of its 200,000 tonne/year MTBE unit in northeast China into an alkylation plant, but the economic efficiency remains to be seen.

Many others are seeking outlets overseas, although the arbitrage window from China into Singapore remained closed for most time of 2017.

China’s MTBE exports rose by 10.6% year on year to 41,600 tonnes during January-October 2017, all of which were made by Wanhua Chemical. Cargoes were mainly delivered to South Korea, Taiwan and Singapore.

Meanwhile most refiners are reluctant to scale up their output of ethanol gasoline at present, citing poor public reception among downstream users largely borne out of concerns over the lower energy content of ethanol than traditional gasoline.

Logistical issues are another hurdle with ethanol, as it dissolves with water and thus difficult to be transported via pipelines. It is best transported by barge or railcar, which tends to be more costly and less efficient than pipeline.

Outlook article by Winnie Huang

ICN