Aniline Will Be Oversupply

By Lv Yongmei

  1 Drastic capacity expansion

The capacity, the output and the demand of aniline in China all
grew rapidly in 2006. By the end of 2006 the capacity was around
912 thousand t/a, an increase of 54.1% over the same period of
2005. The capacity excludes the shutdown aniline unit in CNPC
Jilin Petrochemical Company Ltd. and the aniline unit jointly
constructed by BASF of Germany, Huntsman of the United States,
Shanghai Huayi Group, Sinopec Gaoqiao Petrochemical Company Ltd.
and Shanghai Chlor-Alkali Chemical Co., Ltd. to match the MDI
(diphenylmethane diisocyanate) unit. The output in 2006 was
around 600 thousand tons, an increase of 22.4%. The apparent
consumption in 2006 was around 677 thousand tons, an increase
of 39.0%. The main reasons for the output growth being lower than
the capacity growth in 2006 are as follows. (1) The two aniline
units in CNPC Lanzhou Petrochemical Company Ltd. and Zhangqiu
Riyue Chemical Co., Ltd. had accidents. (2) Many new units had
a low operating rate. For example, aniline units in Shanxi Tianji
Coal Chemical Industry Group Co., Ltd. and Jiangsu Shuangliang
Group started production only at the end of 2006 and the output
was very small.
   Due to the rapid capacity and output growth of downstream
products such as MDI and rubber auxiliaries in recent years,
aniline was in short supply in the domestic market from 2003 to
the first half of 2005. Hence the profit rate in the aniline
sector was quite high. Besides, construction of large
chlor-alkali units has been
accelerated in recent years. To make use of surplus hydrogen,
many chlor-alkali producers have launched aniline projects. The
capacity to produce aniline in 2006 was 238% higher than 2001.
Quite a few aniline units are still being constructed today and
many of them will start production in the first half of 2007.

　2 Rapid growth of consumption
　
At the same time, the consumption of aniline in China has grown
rapidly in recent years. The apparent consumption was around 670
thousand tons in 2006 and the average annual growth was 25.7%
from 2000 to 2006, much higher than the growth of the national
economy. As consumption grew, the consumption structure also
changed greatly. Since the completion of the MDI unit in Yantai
Wanhua Polyurethane Co., Ltd. using the technology patented in
2005, MDI became the primary purpose for aniline consumption,
replacing dyestuffs/pigments, which had been first for many
years.
   In the years before 2000, China imported several thousand
tons of aniline a year to meet the domestic market demand. Due
to the rapid capacity expansion of dyestuffs/pigments,
pharmaceuticals, pesticides and rubber auxiliaries, the
imported amount of aniline increased rapidly from 2001 to 2003.
China’s export of aniline was insignificant before 2003. After
the completion of the 130 thousand t/a aniline expansion unit
in CNPC Jilin Petrochemical Company Ltd. in the second half of
2003, aniline was in surplus. During 2004, import activity
declined while exports suddenly boomed. But the explosion of an
aniline unit in CNPC Jilin Petrochemical Company Ltd. at the end
of 2005 set back exportation and contributed to a rapid increase
of import to 7 132 tons in November and December 2005. Aniline
imports hit a historical high in 2006 while the exported amount
remained very small. The main reasons for the rapid growth of
import activity are as follows. (1) With the impact from the
accidents in CNPC Jilin Petrochemical Company Ltd. and CNPC
Lanzhou Petrochemical Company Ltd., major downstream companies
are worried over the supply deficit of aniline in the domestic
market. (2) Due to the completion of a 160 thousand t/a MDI unit
in Daxie of Ningbo, Zhejiang province, Yantai Wanhua
Polyurethane Co. Ltd. has to import a considerable amount of
aniline to meet its MDI production needs.

  3 Frequent accidents and slight price drop

Because of the supply deficit, the price of aniline was
relatively high from 2004 to the third quarter of 2005. It was
basically maintained at the historical highest evel of around
RMB15 000 per ton from January to September 2005. With the
completion of some new units, the price started a rapid decline
in October 2005 and there was an oversupply in the domestic
market. The aniline unit in CNPC Jilin Petrochemical Company Ltd.
suffered an explosion on November 13th, 2005, sending price of
aniline back upwards. It was maintained at around RMB12 000 per
ton in the first quarter of 2006. The completion of the 100
thousand t/a aniline unit in Nanjing Chemical Co., Ltd. caused
a slight price drop of aniline in the second quarter of 2006 and
some producers had product overstock. Another explosion
occurred in the aniline unit of CNPC Lanzhou Petrochemical
Company Ltd. on May 29th, 2006, causing the price of aniline to
stop going down and stabilize. There was an oversupply once again
from June to August 2006 and the price of aniline started to drop
in the fourth quarter of 2006. The price rise of a key raw
material, pure benzene, at the end of 2006 failed to support the
price of aniline. The aniline unit in Jiangsu Meilan Chemical
Co., Ltd. had an explosion on January 5th, 2007. For the sake
of safety, CNPC decided to shut down the aniline unit in CNPC
Lanzhou Petrochemical Company Ltd. in early 2007 and the time
for production restoration is not yet finalized. Besides, the
aniline unit in CNPC Jilin Petrochemical Company Ltd. has been
out of production for more than one year, and the schedule for
returning to production is still uncertain. The price of aniline
in China in 2006 basically maintained at RMB11 000- 12 500 per
ton, and the profit rate was relatively high.

  4 Market prospect in 2007

    4.1 Slow growth of demand

The rapid demand growth of aniline in China in recent years
mainly comes from MDI and rubber auxiliaries. The demand growth
in dyestuffs, pharmaceuticals and pesticides is relatively
stable.
   MDI: The 240 thousand t/a MDI unit jointly funded by BASF of
Germany, Huntsman of the United States, Shanghai Huayi Group,
Sinopec Gaoqiao Petrochemical Company Ltd. and Shanghai
Chlor-Alkali Chemical Co., Ltd. started production in 2006.
(CCR2006, No. 24) As the company has an aniline unit, there is
basically no consumption of aniline from outside sources and
there is no commodity supply to the market either. Yantai Wanhua
Polyurethane Co. Ltd. has a MDI capacity of 280 thousand t/a in
Ningbo of Zhejiang province and Yantai of Shandong province.
There are no reports of capacity expansion planned to be made
by the company in 2007. Based on an MDI operating rate of 100%,
the demand of aniline for MDI is expected to reach around 224
thousand tons in 2007.
   Rubber auxiliaries: China’s capacity to make rubber
auxiliaries expanded rapidly in 2005 and 2006, and in the second
half of 2006 there was already a serious oversupply. Many units
started production in the second half of 2005 and the first half
of 2006. The newly added capacity of rubber accelerators will
be only 10 thousand t/a and the newly added capacity of rubber
antioxidants will be around 15 thousand t/a in 2007. There will
therefore be no big demand growth for aniline. The demand for
aniline in rubber auxiliaries is expected to be 135 thousand tons
in 2007.
   Pharmaceuticals and pesticides: In the pha