Ethylene Glycol – this odourless, colourless, and sweet-tasting syrup is used to make polyester fibers and antifreeze formulations. After China, India is the world’s second largest importer of it (over $800 million-a-year). Though decline in global crude price may have made the equation hazy for its importers, with only a handful of domestic producers, imports remain the only solution to meet its ever-rising domestic demand.
Sairaj Iyer | August 2016 Issue | The Dollar Business
Patented by John Rex Whinfield, in 1941, polyethylene terephthalate, commonly known as PET, is one of the most used chemicals in the world. It is estimated that while 30% of the world’s PET production goes into production of bottles, some 60% is used in synthetic fibres. During the summers, the usage of PET increases significantly in India, especially in the beverages industry with the increase in demand of soft drinks and bottled water. If you’re unsure as to why the demand for PET is high, walk into a supermarket and count the number of items – jackets, t-shirts, bags, toys, plastic containers, bottles, etc. – PET is present in them all. And as the demand rises, it drives the trade economy of another chemical called ethylene glycol, a colourless and odourless chemical that is a vital ingredient in the manufacturing of plastics, mainly Polyethylene Terephthalate (PET) films.
Considered as one of the top 30 essential chemicals of the world, this is a syrup-like liquid with a sweet taste. It was first synthesised from ethylene dichloride in Germany and used as a substitute for glycerol in the explosives industry during World War I. The versatility of this organic compound can be gauged from the fact that the end uses of ethylene glycol range from clothing to polyester fibres and from packaging to plastics and engine coolants. Little wonder, this chemical has its own share of eco
nomics, price-sentiment, and obviously an associated import-story.
Within the trade of chemicals produced from ethylene, via its intermediate ethylene oxide, mono ethylene glycol (MEG) and di ethylene glycol (DEG) are the top variants. MEG’s major commercial application is its use as a raw material for the production of polyester fibres and plastics, which in turn accounts for ethylene glycol’s maximum commercial use. Owing to it’s low freezing point, MEG can also resist freezing. This makes it act as the perfect anti-freeze for automobile applications. It is commonly used in chilled water air-conditioning systems.
As per a CPMA (Chemicals and Petrochemicals Manufacturers Association, India) report, while 73% of MEG is used in production of fibre, 16% is used in PET, 7% in films, 3% as an antifreeze, and remaining in other industrial applications. Upholstery, carpets and pillows as well as light PET bottles and food containers also originate from ethylene glycol.
MEG is also used in applications that require chemical intermediates for resins, solvent couplers, freezing point depressors, solvents, humectants and chemical intermediates. While its use as an anti-corrosion agent to continuously protect the pipelines is already known, few are aware of the fact that ethylene glycol is also commonly used in making shoe polishes and also in some printing inks and dyes.
On the other hand, di ethylene glycol (DEG) is used in the manufacture of polyurethane and unsaturated polyester resins. There are also cases of ethylene glycol in the pharmaceutical industry particularly in the manufacture of a few vaccines in the form of a catalyst. It is easier to recollect ethylene glycol as the chemical, which along with Formaldehyde forms a chemical used in preserving biological specimens. The chemical also displays anti-corrosive properties, hence its use in liquid anti-corrosives.
Owing to these varied applications, the demand for MEG has fuelled at a faster rate. Globally, the demand for MEG has seen a unprecedented growth since the last decade – since FY2007 the year-on-year growth has been 5%. Global demand for MEG was estimated to be 25.7 million tonne in 2015, with a capacity of 28 million tonne. Further based on demand for polyester and PET, the demand continues to remain healthy and is likely to keep growing at a steady clip.
With the advantage of cheap feedstock, the Middle East with its large built up capacities is a dominant player in the MEG industry. China has emerged as the main consumption hub with its built up large downstream polyester capacities.Production of MEG across the world had been hit hard by the global depression of 2008-2010, restricting domestic capacity additions. As the industry started its path to recovery and the production achieved normalcy, capacity additions in India were initiated to satiate the growing demand for MEG in the high growth PET and packaging industry. In India, the key players are Reliance Industries Limited (RIL), Indian Oil Corporation Limited (IOCL) and Noida headquartered, India Glycols Limited (IGL). While IGL has been attributed as the first company in the world to use ethanol derived from molasses in the production of Bio-MEG, it has also managed to successfully export bio-MEG at a premium.
RIL is the largest producer of ethylene oxide and ethylene glycol in India, accounting for about 75% of the total produce. Interestingly, 85% of this is consumed in captive polyester production.
In recent years, India’s domestic production of ethylene glycol has scaled up, but it isn’t enough to meet the domestic demand, which compels India to depend heavily on imports. According to CPMA, the capacity of 2,000,000 metric tonne (MT) was insufficient to meet the demand of 3,024,000 MT,thereby necessitating imports of 1,262,000 MT of MEG mainly from Saudi Arabia, Kuwait and Singapore. Incidentally, India is the world’s second largest importer of ethylene glycol. It is superseded only by China. US, Belgium and Indonesia follow India as far as the global order of ethylene glycol import is concerned.
It’s the new polyester expansion line ups in India that have contributed extensively to the shortfall in MEG supply, but the shortfall has largely remained consistent according to traders. Since 2001, except during 2012 and 2015, imports of ethylene glycol have consistently gone up. During 2011 and 2012, there have been reports about ethylene glycol being imported from China and US. However, Saudi Arabia, Kuwait, Iran, Singapore and UAE remain India’s top import sources. In CY2015, Taiwan and Canada wre the largest exporters of the chemical. However, products from these two countries haven’t found a market in India. Going by the Ministry of Commerce data, India’s imports by value have slipped from $902.11 million in FY2015 to $826.34 million in FY2016, but the figure is still humongous.
Imports from Iran have picked up momentum, and Iran’s market-share in India’s imports of the product have gone by 1% over the last financial year. However, traders like Samrat Singh, from Vadodara, sharing his concerns about exports from Iran says, “Iranian prices are economical and offer plenty of margin, but trusting their quality could be like winning a lottery ticket.” Industry insiders, who The Dollar Business spoke to, averred that process technologies and catalysts are also imported in addition to the finished product. Most process-technology imports have been made from Shell International, Union Carbide Corporation, Japan Catalytic, Autochem (France), Huels (Germany) and Snam Progetti (Italy). Dow chemicals (USA) and Montticattni (Italy) also have their own processes.
IPCL (Indian Petrochemicals and Chemicals Limited) and NOCIL have well equipped R&D centres, with the former undertaking research activities for improvement of catalysts and preparation of catalyst in laboratory scale. Also, the National Chemical Laboratory, Pune (NCL) and Engineers India Limited, New Delhi (EIL) had worked jointly to develop indigenous EO catalyst and process engineering capabilities.
However, in spite of these critical availabilities, imports have continued in the area of catalysts, instruments and engineering capabilities such as reactors, distillation columns, compressors, variety of pumps, heat exchangers and many more items of industrial utility.
Commenting on the development, industry players claim that upgradation in existing units was essential and the way ahead but cautioned that improving productivity by introducing new technology may be cost-prohibitive.
Surge in new polyester plants have spurred demand for ethylene glycol
Price Factor
When The Dollar Business spoke to a couple of traders, they shared that products from Saudi Arabia are better than the ones available in UAE; however, price is a major concern. There are also trader
s, who expressed concerns that it is quite risky to continue imports because of price fluctuation.
Prices of ethylene glycol have been associated with the cost of Naphtha and Crude, but despite the fall in crude prices, ethylene glycol prices have remained consistent. Prices in South East Asian markets largly remained stable, but corrections were observed on the Shanghai futures exchange. Also, traders who have been particularly importing ethylene glycol for textile related applications, pointed out that the price fluctuations are eating into their profits.
In these environmentally conscious times the concept of “Green MEG” (MEG made from agriculturally derived alcohol) is catching up fast. Coca-Cola was a pioneer in launching a packaging called PlantBottle which uses bio-MEG as a means to make completely recylable packaging material.
The PET resin used in PlantBottle is made from 30% bio-MEG and 70% PTA (purified terephthalic acid). Using this bio-based MEG would help remove an equivalent of 690,000 tonne of carbon dioxide or the use of more than 1.5 million barrels per year of oil. As of now, only Canada has a law that regulates flow of ethylene based products into the country. While bio-MEG is expensive, large MNCs are making a shift towards this environment-friendly product.
While imports of ethylene glycol has been on a decline over the last couple of years, with the global economy trying to turnaround and India expected to perform better on the back of a good monsoon, CPMA forecasts an uptick in demand. Though Indian Oil Corporation (IOC) has plans to set up an ethylenerecovery unit and a MEG plant with an investment of Rs.3,800 crore, these facilities will only start production in 2020-21. And as such the domestic production capacity is unlikely to increase in the near future. Availability of bio-ethanol and its cost is a key factor for which it is not a viable substitute to ethanol and hence imports seem to be the only option to satisfy domestic demand.
Experts are largely in agreement that this is an appropriate time for Indian importers to grow their imports of ethylene glycol as low prices of crude oil is expected to translate into higher profits given the expected, gradual rise in oil prices during 2016-2017. Also, Indian industries dependent on ethylene glycol can leverage this period of competitive prices to scale up their manufacturing output.
Khushboo Bhavsar Import-Export Consultant, Ahmedabad, Gujarat
TDB: Please share an overview of the market situations and forces that affect price of mono ethylene glycol (MEG) and di ethylene glycol (DEG) ?
Khushboo Bhavsar (KB): Even though MEG and DEG have applications in areas such as textiles, pharmaceuticals, and more importantly plastics, they are referred to as building chemicals – few traders also use them in the ceramics industry. The end-use price depends on the concentration of the product, and since China purchases almost 10 times of India’s import quantity, it is a major market driver. This gap has in fact increased consistently.
Further, because ethylene glycol production relies on crude and fractioning of naphtha, there has been a major correction in terms of price. A recent market-survey had pointed a 10% price-dip in the last six months.
The upcoming G20 conference, to be held in China in September, is likely to address such issues faced by producers of ethylene glycol. So, we can expect the demand to decrease significantly during this period.
In terms of supply, some industry players have expressed concern that supply of MEG from the Middle East should increase in June. However, cargoes from regions outside of Asia into China may decrease, given the tighter availability of cargoes outside China.
TDB: Are you talking about any specific case or will the price-slump extend to Indian markets?
KB: The recent trend of DEG market has remained weak. Zhangjiagang, a market that observes shipments in the range of 1,380 tonne a month at two of its ports, trades somewhere in the range of 4,400-4,420 yuan per tonne. While in another market, Ningbo, which closely follows the former, trade is happening at 4,550-4,600 yuan per tonne.
Observers point that cargo shipments have contracted, and are nearing US shipment prices. Traders are anticipating a gradual downstream trend, which should augur well for long-term glycol bonds, despite the fact that this will provide obvious shocks in the short term. This rationalisation is bound to impact Indian imports and we will see import numbers marginally subside by 5%, which will impact the prices of domestically manufactured DEG and MEG.
TDB: How has falling crude price impacted MEG and DEG?
KB: Ethylene glycol has remained quite a sensitive product to crude. Even during the Dragon Boat Festival, there was no significant improvement. Under weak shipping market, participants lack confidence. This is also due to the fact that the market-outlook is grim with the international crude oil shock.
Chemicals market has historically been an impulse market, which is why it is now a weak sector. The Chinese market is actually quite a complicated one. For instance, ethylene glycol price difference between South China and North China is a good 500 yuan per tonne.
In western markets, the top producers in US had remained shut for over two quarters on account of hurricanes. This cushioned prices from spot-crashing, in spite of crude price spiralling southwards. When the Federal Reserve meeting on interest rates commodities was convened, traders focused on their warehouses to cash-in on excess supply, and this helped tide over market.
The other factors included polyester market regaining strength from a slump, and recovering close to 74% as per industry estimates. The good turn is anticipated to continue as much as crude oil recovers itself. Traders of the product should, hence, pay close attention to the trend of crude oil.
Rajesh Marwaha Head – International Business, India Glycols Limited
TDB: Please give us an overview of the company and its operations?
Rajesh Marwaha (RM): India Glycols Ltd. (IGL) is the only green petrochemical company in India that manufactures green products with lower carbon footprint from renewable, natural, agro-based and waste feed stock. We manufacture green technology-based bulk (Glycols & Ethylene Oxide Derivatives), performance chemicals, natural gums, spirits, industrial gases and nutraceuticals by deploying safe, eco-friendly, cost effective processes and proven technologies with a focus on innovation and high level of safety standards.
The major feedstock for Bio-MEG (Bio-Mono Ethylene Glycol) is bio-based ethanol, whereas the conventional MEG is made from crude/ naphtha. As the price of crude has seen a steep fall in last 2-3 years, the conventional petro-based MEG prices have also declined substantially. IGL is not competing with the conventional MEG and is strategically focusing on increasing exports to more mature and environmentally-conscious markets in US, Europe, Japan and South Eeast Asian countries like Korea and Taiwan among others.
TDB: What are the challenges in the ethylene glycol’s trade?
RM: The biggest challenge today is the feedstock price for Bio-MEG versus conventional petro-based MEG. While ethanol prices continue to remain firm, the crude oil prices have fallen sharply. Also, as of now, there is no government policy support for the bio-based plastics market. The manufacturers of green products are left to themselves to compete with low-priced petro-based products. And another challenge is that, at present, the Green concept is majorly acceptable in mature world markets. In India only large profitable MNCs are willing to consider shift to bio-based products.
TDB: Does the ethylene glycol industry need an economic/policy-driven push to help reduce imports?
RM: A major constraint today is the unavailability and cost of bio-ethanol, so the sector is left with no option but to import ethanol. Hence, we strongly feel that the import duty on ethanol should be waived off completely. Further, a green chemicals company like ours is located close to feedstock availability in north India, but away from seaports. Thus, the product cost increases for exports due to high logistics overheads. A preferential rail freight for inland movement to the port can go a long way in providing a level playing field, by reducing the freight costs, making it more competitive.
In general, logistics and infrastructure need to be improved. Easy credit at internationally competitive rates needs to made available immediately in order to attract investments in green chemicals sector. Also, the industry needs to invest in R&D and new technology, with the government support.
TDB: IGL has innovated a great deal in bio-MEG. Is your organisation also thinking about any other innovations, or is it currently planning to develop additional facilities?
RM: IGL has conducted the Life Cycle Assessment study of its Bio-MEG and it has shown 30% reduction in carbon footprint. This led to the conclusion that manufacturing MEG through renewable raw-materials is a better option than adopting the conventional manufacturing approaches. The study has also been able to convince large MNCs to move towards a more sustainable and environment-friendly Bio-MEG.
IGL is also pioneering an ambitious project of making second generation ethanol from waste bio-mass like bagasse, rice straw, wheat straw, bamboo, cotton stalk, corn stover, wood chips, etc. The demonstration plant was inaugurated in April this year at Kashipur facility in Uttarakhand. Once the plant is operational, it is expected that the ethanol price will become more economical.
As the logistics overheads form a substantial component of the pricing model, IGL is working hard to keep such costs in check. The company plans to a have railway siding of its own at its facility, which will help in keeping the cost competitive and would yield topline growth.
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