Industry News
Strong performance of raw materials, sustained cost support in the new pentanediol market
In the third quarter of 2023, the domestic price of neopentyl glycol rebounded from a low point and remained high after being pushed up. Taking East China Hydrogenation as an example, the price closed at 10300 yuan/ton at the end of the third quarter, an increase of 1900 yuan/ton or 18.4% compared to early July. During the quarter, the price of neopentyl glycol showed a stepwise increase, mainly driven by the rising cost of raw material isobutyraldehyde. In addition, the domestic demand is not weak during the off-season, and with the arrival of the peak season, the early release of demand triggers the stock market. From the operating characteristics of new pentanediol prices in the past five years, it can be seen that the overall price of new pentanediol in 2023 is below the five-year average level, and it was near the lowest point in June before slowly rising in the third quarter.
The performance of raw material isobutyraldehyde is strong, and the cost support of neopentyl glycol continues
The cost increase is the most direct reason for the quarterly increase in new pentanediol. The cost line for producing new pentanediol using different processes in the third quarter moved up with the increase in raw material isobutyraldehyde. The price of raw material isobutyraldehyde fluctuated and increased in the third quarter due to domestic device maintenance and supply contraction, with an upward range of up to 30%. The unit consumption of isobutyraldehyde in the production of hydrogenation and disproportionation of neopentyl glycol reached 0.75 and 0.8, respectively. The cost is significantly affected by isobutyraldehyde, and the cost changes are highly consistent with the trend of isobutyraldehyde. The profit of the new pentanediol industry has significantly declined this year, and since the third quarter, new pentanediol enterprises have officially entered a theoretical negative profit state. Under the loss of profit margin, the new pentanediol factory can only continuously keep up with the high raw materials. Although the price of isobutyraldehyde briefly declined in mid August and mid September, neopentyl glycol remained stable, mainly due to excessive cost pressure and no room for factories to compromise.
Maintain incremental domestic demand while slightly tightening external demand
In the third quarter, the domestic consumption of neopentyl glycol increased by 1.2% month on month and 2.2% year-on-year. The improvement and early release of demand have provided support for the rise of neopentyl glycol. The favorable real estate measures are expected to offset the adverse impact of poor new construction in real estate, while the completion and delivery of the building continue to drive the early release of paint demand. From the perspective of the downstream industry of neopentyl glycol, the unsaturated resin industry has been continuously decreasing since April. In September, due to the phased improvement of orders, demand briefly improved, and the overall demand for the quarter was flat. The performance of the main downstream polyester resin was decent, not only due to the off-season not being weak, but also due to the positive expectations for the gold nine silver ten and the low point of new pentene glycol prices hit early at the end of June, leading to low stocking behavior. Due to abundant inventory of low-priced raw materials and high production enthusiasm, the consumption of new pentene glycol increased, and demand continued to rebound in the third quarter. In terms of exports, only the first quarter performed well, while there was a contraction in both the second and third quarters. However, although exports continue to increase in the proportion of demand in 2023, with an average of only around 7%, they have little impact on the price operation of neopentyl glycol.
Total supply continues to increase, constraining market growth
In the third quarter, the total domestic supply of neopentyl glycol increased by 6.7% month on month. Although domestic factories are undergoing centralized maintenance, the supply level is still at a high level due to the introduction of new production capacity. In the third quarter, domestic new pentanediol factories underwent centralized maintenance, but some major factories had high operating levels and high production, with a month on month increase of 11.5%. The total production was 118700 tons. However, there has been a contraction in imports, especially under the maintenance of major trading partner LG in South Korea in September, which led to a sharp decrease in its quantity. It is expected that the import volume in the third quarter will reach 11800 tons, a decrease of 25.6% month on month. LG in South Korea mainly supplies leading domestic polyester resin factories, and after reducing supply, it has increased the demand for replenishment from downstream large factories in China. From August to September, there was a direct feeling of a tight market spot due to domestic factory maintenance, but it was more caused by production factories exceeding orders and downstream early stocking. The increase in actual supply level is an important reason why the price increase of neopentyl glycol is not as high as the cost. Due to the increase in supply channels and mutual constraints between new pentanediol factories, it is not easy for market prices to continue to rise.
Q4 Outlook: Cost and Supply/Demand Relationship Breaks, Neopentyl Glycol Variable Still Exists
Due to the disruption of the peak season pattern of neopentyl glycol in the third quarter, there are still variables in the fourth quarter. The price trend of raw material isobutyraldehyde is still related to the cost changes of neopentyl glycol, and its operating direction determines the main direction of neopentyl glycol. In terms of isobutyraldehyde, in the fourth quarter, except for the partial conversion of the Tianjin unit to isobutyl alcohol, the production slightly decreased. Qilu Petrochemical has a half month maintenance plan, and there are currently no other planned maintenance. The industry's construction will once again return to above 95%. In terms of new pentanediol, the fourth quarter maintenance was only carried out in Fufeng Bristol, and some factories were controlled to start operations due to order taking or profit issues. However, despite the possibility of increasing the release of new production capacity, the consumption of isobutyraldehyde still shows an upward trend. In terms of dodecanol esters, although the production has been low in the past two months due to poor price transmission, they have also been passively involved in the competition for isobutyraldehyde. In the next three months, the supply of isobutyraldehyde may still be insufficient, and prices will remain strong and difficult to fall. Neopentylenediol itself is already in a negative profit state, and even if it does not keep up with the increase in raw materials, it is bound to strive to maintain its current state, following the trend of isobutyraldehyde, with a smaller magnitude than isobutyraldehyde.
Under the premise of tight and balanced supply of raw material isobutyraldehyde in the fourth quarter, the probability of isobutyraldehyde price firming is high, and the new pentanediol factory is in a loss state. The impact of cost will increase, and the supply side will maintain a high increase in new production capacity. Although demand expectations are tightened, there is limited room for change, and the market is in a long short confrontation. Firstly, the cost side is relatively strong. The trend of isobutyraldehyde as a raw material in the fourth quarter provides support for neopentyl glycol. With the increase in the production of neopentyl glycol, the consumption of isobutyraldehyde has increased, and the trend of isobutyraldehyde being relatively strong has been maintained, which may limit its price space due to poor follow-up of alcohol esters. Secondly, pressure has hit the supply side. In the first half of the year, new production capacity has been implemented one after another, and Wanhua Chemical's Phase III 60000 ton/year new pentanediol unit is planned to be put into operation in the fourth quarter. With the end of centralized maintenance and the improvement of industry operations, supply will increase. Once again, demand expectations have weakened. In the third quarter, there was an early rebound in the market for new pentylenediol, with a slight overdraft of demand for gold, silver, and ten. Due to the poor transmission of high raw material prices, downstream resins have a slightly pessimistic outlook for the fourth quarter. Finally, the overall mindset tends to be conservative. The overall macro data is improving, but the performance of terminal consumption capacity is insufficient within the year. The fourth quarter is approaching the end of the year and it is a low demand season, and the mentality of all parties may be biased towards conservatism.
Overall, neopentyl glycol was in a confrontational phase in the fourth quarter, with the overall price center slowly declining. Although the raw materials are expected to be strong, it is always necessary to consider subsequent conduction. Under the comprehensive weakening of supply and demand and mentality, there is a limit to the strength of isobutyraldehyde. The rush to purchase raw materials by new pentanediol factories will increase their own costs, and an increase in production will make it difficult for their prices to keep up with the increase in raw materials. Therefore, the isobutyraldehyde market will reallocate resources. In this process, the price of new pentanediol will continue to be close to the price of raw materials, and the level of losses will continue to expand. The factory faces a choice between quantity and price guarantee.
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