Epichlorohydrin overcapacity manifestations

China Drying News In the second half of November, Haili Chemical, a domestic manufacturer of epichlorohydrin, announced that the price of epichlorohydrin was reduced to 9900 yuan (t price, the same below). The domestic market once again fell below the million mark. At the end of November, the market price in Shandong was negotiated at 10,100 yuan, a year-on-year decrease of 3,000 yuan; the market price in Huangshan District was 10,500 yuan; in other parts of East China, the market price was 10,300 yuan. The atmosphere of the spot trading is weak, and the downstream resins are mainly stockpiled in the early stage of digestion. They are cautiously sourcing and the market conditions are fluctuated at a low level.

After the Spring Festival this year, market prices have been significantly smashed by mainstream suppliers. Unexpectedly, this wave of open markets has not only brought the market price to the highest point of the year, but also seems to overdraw the market momentum of the year. After this wave of rapid retreat, the domestic epichlorohydrin market has entered a long period of weakness, the highest price never exceeded 12,500 yuan, the lowest price fell below 10,000 yuan, a record low since the 2008 financial crisis. The unexpected downturn has caused suppliers to make losses again and again. In the most dire situation in the industry, only three companies, Shandong Haili, Shandong Xinyue and Qilu Petrochemical, were among the more than 10 domestic epichlorohydrin suppliers. The annual operating rate of individual suppliers is expected to be less than 30%, and serious losses are a foregone conclusion.

The episodic epichlorohydrin situation is so fierce with macroeconomic factors. Epichlorohydrin downstream products are relatively single, more than 90% are used to produce epoxy resin, and epoxy resin as a product close to the end of the industrial chain, its rise and decline are directly affected by macroeconomic fluctuations. Since the beginning of this year, its downstream coatings, copper clad laminates, and adhesives have performed poorly, and the shrinkage of wind power and composite materials has been particularly severe. The sales of various epoxy resin manufacturers have turned sharply since the second quarter, and the operating rate has been severely declining. Naturally, the demand for raw materials for epichlorohydrin has been greatly reduced.

However, the deep-seated reason is still that China's epichlorohydrin industry structure itself is seriously irrational. At the beginning of the 21st century, the supply of epichlorohydrin in China was still mainly dependent on imports. However, since 2006, domestic production capacity has expanded rapidly. In just a few years, domestic production capacity has not only completely marginalized imported sources, but also quickly made China the world’s number one epoxy. Chloropropane production countries. However, the leap-forward growth in production capacity has been severely divorced from the actual domestic needs. According to statistics, domestic production capacity has reached nearly one million tons this year, while domestic apparent consumption is less than 500,000 tons. What is even more frightening is that China still has hundreds of thousands of tons of capacity under construction and proposed capacity. It is expected that the operating situation of China's epichlorohydrin companies will become even more worrying in the next few years.

The vast majority of the capacity currently under construction and proposed are based on a new glycerol process. This process is considered to have a more cost advantage than the traditional propylene process. Some of the newly-entered companies are therefore expected to have greater profits, or believe that they can take advantage of low-cost advantages. However, in practice, because the technology is not yet mature, the degree of mastery of enterprises is uneven, and some factories may have poor cost control capabilities. The long-established large-scale glycerol epichlorohydrin enterprise in China has actually started mass-marketing products for more than one year after the initial forecast, and will encounter new problems in almost every step of the trial run. If you count the huge depreciation expense and capital cost incurred during the long-term commissioning period, the cost advantage may be lost immediately. Not to mention the fact that the glycerol epichlorohydrin technology itself has patent disputes and companies are also facing legal risks.

As the new players in the domestic epichlorohydrin market are in great shape, the original company’s sense of crisis has deepened. Many established companies adopt preemptive strategies to accelerate their own expansion. In the next two years, the existing Shandong Haili, Jiangsu Yangnong, Fujian Haobang and Hebei Shengao and other companies have completed or are about to complete capacity building. These companies endeavor to use their existing sales channels and customer resources to consolidate or further expand market share, in an attempt to “crowd-out” to prevent new investors from dividing their vested interests. Many existing manufacturers claim that their expansion is "a last resort" because in this era of rampant development, "enlarging energy cannot necessarily live, and no expansion can certainly result in a dead end."

Epichlorohydrin is a highly polluting hazardous chemical. Propylene epichlorohydrin was included in the restricted development category last year. However, the local industrial parks also competed for the epichlorohydrin project. Local governments’ enthusiasm encouragement and unfiltered support fueled the irrational expansion of production. In the background of slowing economic growth and the collapse of both consumption and investment in China, the investment in a set of epichlorohydrin devices is still at the cost of several hundred million yuan, which can be said to have immediate effect on local GDP, but the resulting environmental problems, land abuse The problem of serious overcapacity may cause local and even the whole country to pay double social costs.

At present, China's private economy has occupied half of the country's economy. These economic entities have greater initiative and flexibility, and they tend to be quicker for profit-seeking investments. Because of this, macro-control is more important than ever. In addition to the total control of the focus of regulation and control, another key task is the industrial layout. We must not only see the resource advantages of a certain place, but also see its market demand. The two cannot be biased. Otherwise, it will easily lead to a phenomenon of “a swarm of bees” and a huge waste of social resources.

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