acetic acid

CHINA CHEMICAL REPORTER February 21st, 201113

WWW. CCR. COM. CNOrganic

By Shao Shouyan, Xia Jingfeng - Jiangsu Sopo (Group) Co., Ltd.

Current Status:continuous capacity stretching

Like most chemicals, the production of ace-tic acid in China has increased sharply inthe last five years: 23% in capacity, 22% inoutput and 12% in apparent consumption.Authoritative data shows that in 2009 thecapacity and output of acetic acid in Chinahad reached to 4.7 million and 2.721 milliontons per year, while the apparent consump-

tion was up to 2.954 million tons whichmight be the fastest and best in the world.Respectively, in the first half of 2010, Chinahas already produced 1.952 million tonsacetic acid, and it was estimated that bothoutput and consumption might exceed 3.5million tons in accordance with expected 6million tons capacity by the end of 2010.The main reason for this incredible growthis breakthroughs in acetic acid processingm e t h o d s ; i n p a r t i c u l a r m e t h a n o l

carbonylation became more popular as mainforce of acetic acid production. China cur-rently has more than 20 acetic acid facto-ries and Table 1 shows the top ten Chinesefactories in acetic acid capacity in 2010. The breakthrough of processing methodbrought a rapid growth and wild expansionfor Chinese acetic acid; nevertheless, themarket tended to be more competitive un-der the pressure of declining product price,and some native factories found it tough torun the business and had to cut down op-eration scale. In 2010, the average operat-ing rate of acetic acid plants in China justremained approximately 60% including 20%and 45% in those using oxidative fermenta-tion and ethylene oxidation, but the operat-ing rate of methanol carbonylation plantsextremely increased to 70% which indicatedthe potential of innovated processingmethod. On the other hand, large acetic acidgiants shows more ambition and intereststo Chinese market, and most of them aretrying to built new acetic acid plants or ex-tend their current facilities, Table 2 is sta-tistics of China new-added acetic acid ca-pacity before 2015. Theoretically, the total capacity of Chinaacetic acid would be able to approach to 9.95 million t/a as long as all the plants shownin Table 2 go into operation on schedule.Anyway, by the end of 2015, the overallcapacity of acetic acid in China will defi-nitely exceed 8.5 million t/a even if uncer-tainty of new-added plants constructionand exit of oxidative fermentation and eth-ylene oxidation.

Improving Competitive Power

The Route for ChineseAcetic Acid Producers

Table 1 Top ten Chinese acetic acid factories in capacity in 2010No Company Capacity(kt/a) Processing1 Jiangsu Sopo (Group) Co., Ltd. 6 0 0 Methanol Carbonylation2 Shanghai Wujing Chemical Co., Ltd. 6 0 0 Methanol Carbonylation3 Yankuang Cathay Coal Chemicals Co., Ltd. 6 0 0 Methanol Carbonylation4 Celanese (Nanjing) Chemical Co., Ltd. 6 0 0 Methanol Carbonylation5 BP YPC Acetyls Company (Nanjing) Ltd. (BYACO) 5 0 0 Methanol Carbonylation6 Hebei Zhongxin Chemical Co., Ltd. 5 0 0 Methanol Carbonylation7 Yangtze River Acetyls Company(YARACO) 3 5 0 Natural Gas Methanol Carbonylation8 Henan Shunda Chemical Science & Technology Co., Ltd. 3 0 0 Methanol Carbonylation9 Jilin Ji’an New Energy Group Company 2 1 0 Oxidative Fermentation10 PetroChina Jilin Petrochemical Company 2 1 0 Ethylene OxidationSource: CCR

Since the coming of overseas acetic acid giants and their increasing mar-ket share in China, the situation for Chinese domestic producers seems tobe more critical, while excessive capacity and weak competitiveness aregreat troubles. What should domestic producers do to win the tough battlein acetic acid market? The following comprehensive analysis by ShaoShouyan and Xia Jingfeng from Jiangsu Sopo (Group) Co., Ltd. - the big-gest local acetic acid producer - might provide the right answer.

CHINA CHEMICAL REPORTER February 21st, 2011 14


Analysis:downturn of Chinese acetic acid

industry

History of Chineseacetic acid market

2005-2007 - The Chinese market had astrong demand for acetic acid while domes-tic supply was unable to meet, and the gaphad to be filled by import, therefore aceticacid price remained high in a fairly longperiod.

2007-2009 : From 2007 that global fi-nancial crisis started, Chinese acetic acidmarket was badly hurt and the price of ace-tic acid slumped in the situation of increas-ing capacity, which resulted in a very lowoperating rates and even shutting downfactories. 2010-2011 : In 2010, global economictook a turn for the better and it seemed tobring a new life for Chinese acetic acidmarket, in the presence of acetic acid in-dustry recovery. However, the two-yeardownturn still had a serious impact for theChinese acetic acid industry and the marketturned to be more depressed after fewmonths' recovery. Currently, the excess capacity of aceticacid still troubles Chinese producers andthe government, but interestingly, foreigngiants reinforce the investment of acetic acidproduction and downstream products in the

to apply coal based methanol carbonylationin acetic acid production, which has obvi-ous advantage in cost and is able to bringconsiderable profit for producer. Therefore,some Chinese coal enterprises tried theirbest to build up more acetic acid plants withthe purpose of higher profits, and foreignacetic acid giants also joined the competi-tion for market share, which improvedmethanol carbonylation to some extent.Nevertheless, the whole acetic acid indus-try tended to be out of order, and supplycame to exceeded demand by quite a bitwithin five years, which must be the rootcause of the current downturn.

Financial crisis postponesindustry recovery

The excessive capacity gave huge impact toacetic acid market, but the capacity willspontaneously accord with demand even-t u a l l y b y t h e i n f l u e n c e o f m a r k e tadjustment; obviously it needs a procedure.However, Chinese acetic acid producershave to be more patient to wait the comingof industry recovery because the impact offinancial crisis in 2008 still exists. Celanese- the world's leading acetic acid producerconsidered that the rise of demand in theAsian acetic acid market slowed down in2010, and it is expected that excessive ca-pacity may trouble all the Asian market inthe next few years. Celanese also said thatthe demand for acetic acid in Asian wouldbe not able to keep pace with supply due

to staring-up of new larger acetic acidplants, and this circumstance will last until2014 when the pressure might be relievedfor up to 70% capacity, while the demandfor acetic acid will just rise 1 to 1.5% morethan the Asian GDP increase in the nextfew years.

Domestic factories:weak competitive power

Raw materials - Most overseas acetic acidgiants use natural gas as raw material toproduce acetic acid, which has obvious ad-vantage in cost compared with oil and coal.Respectively, the cost of acetic acid fromnatural gas ranges from RMB1100 to RMB1200 per ton, and the import price is nomore than RMB1600 per ton, but the costof acetic acid from coal (the means used byover 70% Chinese acetic acid factories) ap-p r o a c h e s R M B 2 2 0 0 p e r t o n . I nconsequence, domestic acetic acid generallyhas little cost advantage, as the increasingimports in the first half of 2010 confirmed.

Production technology - compared to Chi-nese traditional methanol carbonylationplants, multinational acetic acid corpora-tions own strong technology backgroundand their acetic acid plants perform fairlywell in production scale and product quality.Celanese said its improvement of AOPlustechnology would increase acetic acid ca-pacity and be able to bring 1.5 million tonsper reactor from the current 1.2 million

marke t downturn , whichshows the potential imagina-tion of Chinese acetic acidmakers, and it is worth pay-ing closer attention.

Disorderly capacityexpansion

The root cause leading to theacetic acid downturn in Chinai s d i s o r d e r l y c a p a c i t yexpansion. Since oil price wererising from 2005, most aceticacid producer could not affordthe high cost of oil and turned

Table 2 Statistics of China new-added acetic acid capacity by 2015Company Capacity Available for

(kt/a) ProductionJiangsu Sopo (Group) Co., Ltd. 6 0 0 Q2 2011Celanese (Nanjing) Chemical Co., Ltd. 6 0 0 2012Yunnan Yunwei Group Co., Ltd. 2 0 0 UndeterminedYankuang Cathay Coal Chemicals CO., Ltd. 4 0 0 2012Henan Longyu Coal Chemical Co., Ltd. 4 0 0 2012Shandong Heze Fu-Hai Energy Development Co., Ltd. 4 0 0 2012Huaibei Coal Mining Group 2 0 0 2011Henan Yima Shengyuan Chemical Science & Technology Co., Ltd. 3 0 0 2011Yangtze River Acetyls Company (YARACO) 6 5 0 Before 2015Chongqing Wansheng Coal Chemical Co., Ltd. 2 0 0 Before 2015Total 3950Source: CCR

CHINA CHEMICAL REPORTER February 21st, 201115


tons. Once this technology was put intooperation, the overseas competitive powerwill give much more pressure to Chineseacetic acid industry.

Production scale - with the addition ofnew plants and extension of current plants,the capacity of Chinese acetic acid hassharply increased and the gap betweenoverseas and domestics in production scaleseems to be much smaller in the last fewyears. For example, Jiangsu Sopo (Group)Co., Ltd. - biggest domestic acetic acid pro-ducer updated original two acetic acidplants and each plant currently has an an-nual capacity up to 600 000 tons, whichstill has potential to be 1 million tons.Overall, Chinese acetic acid factories noware trying to extend production scale toimprove competitiveness.

Downstream products - Over the years,the industry chain of acetic acid in Chinahas basically become fully formed, but theindustry concentration and depth of the in-dustry chain - which cannot compare withthe multinational giants - still need to berefined. Celanese - the global leader has num-bers of high profit downstream products asa basis of its competitive power, and nowthe firm is building an acetyl productionbase in Nanjing, Jiangsu province, which isconsidered to be the first one in the worldand has capacity to produce acetic acid, vi-nyl acetate monomer (VAM) and ethylenelatex. The same as Celanese, BP is also try-ing to realize its dream of an acetic acidbase in Nanjing and Chongqing, southwestChina. According to officer statistics, thetotal capacity of BP and Celanese might beable to reach 2.5 million t/a before 2015,which take approximately 30% of domes-tic capacity in China. Therefore, the com-ing of overseas downstream products willbe a great threat for domestic producers.

Resource integration - the concept of re-source in acetic acid industry involves rawm a t e r i a l s , i n d u s t r y c h a i n , p e o p l e ,technology, funding, management and mar-ket and it is believed that the integration ofresource enable to maximize resource utili-

zation and improve enterprise efficiency,eventually increasing the competitive powerof the company. Obviously, the overseasacetic acid giants in China has global rawmaterials network, a strong innovation teamand comprehensive market structure, whichis the foundation of competitive power, tosome extent, they use the global resource tojoin the game in China. On the other hand,Chinese producers currently have no advan-tage in global resource integration and whatthey could do is to rely on domesticproducers, and initially realize domestic re-source integration and before extending tothe international scene.

Market - It is considered that the Chineseacetic acid market has attained a balance ofproduction and consumption, and currentacetic acid producers each have regular mar-ket share. This being the case, the sugges-tion for domestic producers is to investi-gate the potential market and try to developnew acetic acid products rather than justkeep eyes on current fixed market. In theinternational market, Chinese producersneed to pay closer attention to new demandmarkets those are currently growing fastbecause the current international market hasbeen fixed and also stable in supply anddemand in a quite long time.

The paths to be powerful

The analysis above indicates the coming oftougher competition in China's acetic acidsector; in other words, it would be a goodtime for domestic producers to change theirthinking style. In face of competition, thefirst thing to do for domestics is to build upa healthy market environment, which en-ables local acetic acid factories to grow andget stronger. The following points will bethe tips for local producers to learn in thenext few years.

1. Build up a full informationcollection system

The current excessive capacity in China hasstrong relationship with a shortage of in-formation collection; in particular, most

Chinese producers just put head down forproduction and have no internationalhorizon, and then certainly they lose thechances to know what their competitorsdoing, acetic acid industry development andinnovation of new products. So, it is neces-sary to have a comprehensive informationsystem to collect all the information aroundthe world, which might be the easiest andfastest way to improve competitive powerof locals.

2. Invest in R & D

Strong technology background is the coreof a powerful company, such as Celaneseand BP, who have a full R&D team andnumerous technology centers. Besides fastgrowth in the Chinese market, the originalimpetus for overseas giants to invest inChina is their well developed technologyin downstream products which enable themto be more confident in products salesrather than being concerned in excessivecapacity. Therefore, owning core technol-ogy could guarantee local producers to winthe competition in spite of multinationals'huge investment and long history ofdevelopment.

3. Integrate resources

The purpose of resource integration ofChinese acetic acid producers is to buildup a few giants in the industry, all of whichmust be taking the fastest routes to winthe competition. Multinational acetic acidcompanies such as Celanese are predomi-nant in technology, talents and funding, anddomestic producers could pursue them ina short period. However, the situation inChina allows most domestic acetic acid pro-ducers to integrate separate resources orbring other advantages to bear. In that case,the total competitive power of domesticswould be improved greatly, even being agiant domestically, and might be able tocope with Celanese and BP. Theoretically,the potential of resource integration of Chi-nese producers can be pursued with confi-dence because it has succeeded in otherchemical industries.

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