Uses

Epichlorohydrin (ECH) is predominantly consumed by participants in the epoxy resins market to manufacture surface coatings, castings, laminates and adhesives. Aside from being funnelled downstream, ECH is also used in specialty resins for water treatment, paper treatment or through ion exchange to purify air and water.

As a raw material it is used to produce a variety of glycerine derivatives including plasticizers, stabilisers, solvents, dyestuff intermediates, surface active agents and pharmaceuticals as well as intermediates for further synthesis.

Supply and Demand

Supply and demand look set to remain relatively balanced until the end of 2018. A slowdown in activity is typical for the market in the fourth quarter but seasonal trends have largely been rejected this year. ECH typically moves in line with the epoxy resins market, which experienced steep demand early in 2018, but saw prices tail off in the second quarter, which is usually the strongest time of year.

Demand for ECH remained more consistent than further down the value chain, with buyers willing to accept prices climbing or staying level throughout the year, with no softening. Supply has felt more constricted, as imported Asian volumes have not always been readily available on the market.

According to data from Eurostat, imports were drastically reduced in February and March in a year-on-year comparison, and although the volume of exports also dropped, supply was tight. Imports remained more consistent from April, while exports stayed within a tighter range when compared to the previous year. This is in line with what was happening on the Chinese market, where elevated price levels were sustained until mid-March before plummeting to lower levels than in the previous year.

Prices started to recover at the end of September, and could stay stronger for a sustained length of time, but any sharp change in Asian market fundamentals is likely to be reflected in Europe.

Prices

For most of the year ECH prices have moved in sync with key feedstock propylene, which was largely accepted by the market.

The exception to this pattern was in February, when the price range increased by €100/tonne, which was a significantly higher movement than for propylene.

This increase was supported by high demand from the epoxy resins market, where prices were also seen to be increasing above expectations. Buyers not involved in the epoxy resins market may have been able to avoid increases not linked to higher production costs, as they provide more consistent demand for ECH throughout the year.

Technology

Typically ECH is produced by joining raw materials propylene and chlorine. This combines the reactivity of both the epoxide group and the chloro-group onto a propylene backbone.

There are three production routes to create ECH at an industrial level: via allyl chloride, allyl alcohol or using glycerine. Allyl chloride is the most common technique, although in the last 10 years there has been an uptake in the use of glycerine.

In Europe, glycerine is being used to make a largely captive ECH supply by Czech Producer Spolchemie at its integrated epoxy resins plant, while INOVYN also uses glycerine at one of the two lines at its site in Tavaux, France.

As propylene and glycerine feedstocks require different production methods, the upstream materials cannot be interchanged.

Outlook

In the short term, sentiment suggests prices are likely to continue tracking key feedstock propylene, as is typical for the market. Supply and demand dynamics are expected to stay stable-to-soft for the fourth quarter, in line with seasonal expectations.

There are concerns that in early 2019 a large number of scheduled cracker turnarounds will limit availability of propylene. Although producers are confident that they are guaranteed volumes at this time, despite the supply crunch, feedstock prices are likely to increase.

As yet the magnitude of any potential price hike is unclear, but has already created uncertainty on the market.

ECH monthly contract agreements are likely to be affected by higher production costs. In contrast to this, glycerine prices – which were previously sustained at high levels – appear softer in comparison. This will allow producers using this method to benefit from the more competitive prices.

There has been a shift in the value chain, forcing market participants to take a reactive rather than proactive stance. China remains a key influence on ECH in the European market. If there is an uptick in demand in China, or if environmental regulations in the country limit output from domestic Chinese plants, this could draw a greater volume of material. As Europe is a net importer of material, this could leave supply feeling tight.