Severe Competition Expected in China’s Fatty Acid Market

By Jiang Yanyan, Research Institute of Industrial Economics, China National Chemical Information Center

China’s nearly 100 fatty acid manufacturers can be roughly divided into three groups. The first has imported production technology and equipment; their production capacity is usually over 10 000 t/a. The second employs domestic technology, which uses soapstock as raw material to produce fatty acids through hydrolysis and distillation, or use tall oil or soybean soapstock as raw material. The third type is small businesses that use conventional technology to produce fatty acid and glycerol byproduct through saponification. China’s total capacity for making fatty acids in 2011 was about 2.2 million tpy while the actual output was only about 900,000 tons; thus the average operation rate of the industry was 40.9%. At present, the three largest manufacturers – Yihai Kerry Oleochemical Co., Ltd, Rugao Shuangma Chemical Co., Ltd and Dongma Oils & Fats Co., Ltd, account for 38.6% of China's total capacity of fatty acids. Table 1 shows China’s main manufacturers of fatty acids in 2011 and their regional location.

Table 1: China’s main manufacturers of fatty acids in 2011 and their locations
Company Name    Plant location     Capacity (kt/a)    Remarks
Yihai Kerry Oleochemical    East, North, Central, South China    350    stearic acid soap grains
Rugao Shuangma Chemical    East China    300    stearic acid
Dongma Oils & Fats    Central South, East China    200    fatty acids, soap grains
TAIKOPALM-OLEO    East China    150    fatty acids, soap grains
Rugao Teck Guan (China)    East China    130    stearic acid
Huarun Boxin Grease Chemical    East China    100    fatty acids and amines
Nantong Kangqiao Chemical    East China    100    stearic acid, hardened oil
Deqing Huanuo Chemical    East China    100    soap grains
Others        770     
Total        2200    

Stearic acid, oleic acid, tall oil fatty acids, oil-soluble acids, linoleic acid and a variety of monocarboxylic fatty acids are major products of China’s fatty acid manufacturers. At present, about 70% of raw material grease must be imported, restricting large-scale development of fatty acid manufacturers. However, since China is a major consumer of fatty acids, manufacturers in Malaysia, Indonesia and other countries are shifting their production capacity to Chinese locations. The shift could help domestic enterprises improve their technology and promote the overall progress of China’s fatty acid industry.
   From a technical point of view, the fatty acid industry itself has value chain that is very similar to that of the upstream raw material grease industry, and they are both low-tech. On the market side, two factors have become the main driving force of the fast expansion of fatty acid industry capacity in recent years. One is the overall healthy development of the chemical industry in China; the other is the sharp increase in demand for some basic raw materials. Considering the domestic shortage of grease resources, as well as the emerging overcapacity in the fatty acid industry, those projects proposed or constructed in 2011 are relatively unambitious and small in size.
   Benefiting from China's good economic environment in 2011, industries related to fatty acids, such as the rubber, plastic and surfactant industries, accelerated their restructuring and the transformation of their development pattern. The development of the fatty acid industry was then driven by improving demand. As one of the basic materials, fatty acids output showed steady growth from 2006 to 2011.
   Taking into account the overall domestic oversupply of products and shortage in raw materials, it is estimated conservatively that China’s total production capacity of fatty acids will reach 2.8 million tons in 2016. By then, the operating rates of the domestic fatty acid industry will increase, while competition in the domestic market will still be severe.