USES

The primary market for epichlorohydrin (ECH) is epoxy resins. About 90% of ECH  output goes into the manufacture of epoxy resins for surface coatings, castings, laminates and adhesives, as well as specialty resins for water treatment, paper treatment and ion  exchange, to purify air and water. ECH is also used as a raw material in the manufacture of a multitude of glycerine  derivatives used as plasticizers, stabilisers, solvents, dyestuff intermediates, surface  active agents, pharmaceuticals and as  intermediates for further synthesis.

SUPPLY/DEMAND

The implementation of stricter  environmental regulations by the Chinese government has resulted in several ECH plant shutdowns in the past two years. The laws were introduced as part of China’s e ffort to fight pollution.  Existing plants are running at rates estimated to be at 50% or less. At the same time, producer margins were being squeezed by firmer feedstock propylene costs. As a result, smaller producers, which are less cost-efficient, either shut down plants or ran them at lower rates. Elsewhere, ECH producers that use  alternate feedstock glycerine have been  running their plants at full capacity. However, some end-users and buyers said that there has not been a constant supply of glycerine-based ECH in the key China market. China produces nearly 60% of Asia’s total
ECH output, based on industry  estimates. While the supply of ECH has shrunk in the past year, some buyers are h esitant to import cargoes. Amid the current tight supply, offers for Asian origin spot i mport cargoes have been increasing in  tandem with domestic prices in China. Key ECH producers in South Korea say they have no incentive to sell to China as they can achieve better netbacks by diverting  cargoes to Europe. South Korean ECH has steadily made inroads into  Europe because of a free trade agreement (FTA) between the two. Demand from downstream epoxy resins in Asia was largely stable in the first half of 2017 but gained momentum in the second half. Like ECH, many epoxy resins plants in China were forced to shut due to the stricter  environmental regulations. Most epoxy resins plants in China have been running at full capacity since 2017. As demand outstripped supply, buyers and  producers in China also sourced epoxy resins from the region to meet demand.

PRICES

A persistent buy-sell gap has impeded spot import demand in China for most of 2016 and 2017. From January to early September 2017, ECH prices hovered around $1,125-1,150/tonne CFR (cost & freight) CMP (China Main Ports). As a result, northeast Asian producers and suppliers based outside China focused on selling cargoes in their respective d omestic markets. Some of them also sold cargoes in the US, Europe and India. H owever, demand for spot cargoes in these markets was sporadic. Demand for spot import cargoes into China picked up around September, when domestic prices rose amid tight supply. Around this time, Asian ECH producers  increased their offers into China as they could easily divert their cargoes to the US and  Europe where they could achieve better  netbacks. Amid tight supply, ECH prices in the China domestic market and spot import market faced upward pressure.

TECHNOLOGY

ECH is essentially a derivative of propylene and chlorine that combines the reactivity of an epoxide group with the additional  reactivity of a chloro-group on to a propylene backbone. There are currently three process
routes used to produce ECH at an industrial commercial level – via allyl chloride, allyl  alcohol and the newer glycerine route.

OUTLOOK

Supply of ECH is expected to remain tight in the near-term. There are no signs that the Chinese government will ease environmental regulations. At the same time, ECH producers based in South Korea and Japan are seeing strong domestic demand in their respective markets. In addition to contractual volumes, they have received more spot enquiries from their home markets. One southeast Asian producer and one northeast Asian producer revealed that they do not have any spot availability for January and February amid contractual obligations. An anticipated pick-up in re-stocking  activity is expected in January ahead of the Lunar New Year in mid-February.Against this backdrop, domestic ECH  prices and spot import offers into China  continue to face upward pressure.