16 CHINA CHEMICAL REPORTER Augus t 16, 2006

IntermediateMARKET REPORT

Pinacolone Export increases rapidlyBy Hou LeshanPinacolone is an import ant pest icideand pharm aceutical int erm ediate. I nt he pest icide sector it is m ain ly usedto produce f ungicides, plant growthregulators and insect icides such ast r i a d i m e n o l , d i c l o b u t r a zo l ,t r i ad i m e f o n , p ac l o b u t r az o l ,u n i co nazol e, t ebu co m azol e an dtriapenthenol. These product s al l fea-ture high eff ect , low toxicity, system iceff ect and broad spect rum and havestable dem and grow th.

S table domestic demand

China has 8 p inacolone producers to-day and t he t o t al capaci t y w as 9.2t ho u s an d t / a in 2005. J i ang s uJianno ng A grochem ical Co., L t d .,Zhangj iagang Free T rade East Pesti -cide Chem ical I n t ernat ion al T radeCo., L t d . and Suzhou Huafeng FineChem ical Co., Lt d . have a relat ivelyhigh output. These companies usual lyalso produce downst ream product sand som e producers produce p ina-colone to t al ly f or thei r own use. The consumption of p inacolone inChina was 3.5 thousand t ons in 2005,includ ing 2.7 thousand tons in the pes-ticide sector and 800 t ons in the phar-maceut ical sector. Pinacolone in Chinais m ain ly used to produce pest icidecl im bazole and organic int ermediatestebucomazole and chloropinacolone.

Yancheng Biaoxin Chemical Co., L td .,Yancheng Di l ly Chem ical Co., L t d .,Yacheng Lvye Chem ical Co ., L t d .,Yancheng Lim in Chemical Co., L td. andYancheng Kaipu Chemical Co., Lt d. arem aj or p ro d uc er s of c l im bazo le,tebucomazole and chloropinacolone inChina and t he demand of p inacolonein each producer is more t han 100 tonsa year. Triazo le pesticides in Chinahave developed stab ly and t here hasbeen a stab le dem and in recent years.It is ex pected that t he consum ption ofpinacolone in China will reach 4.9 thou-sand t ons in 2010 w it h an average an-nual growth of 7%. The consumptionin the pesticide sector and t he pharm a-ceut ical sector w il l be 3.6 t housandtons and 1.3 thousand tons respectivelyw it h an average annual growth of 6%and 10%.

R apid export growth

The export amount o f p inacolone inChin a has increas ed rap i d ly in re-cent years. It s downstream product ssuch as tebucomazole have also beenexport ed in great quant it ies. I t is them ain factor f or promot ing t he dras-t ic output grow th of p inacolone inChina. The output of p inacolone was2.1 t housand t ons in 2003, 3.5 t hou-sand t ons in 2004 and 4.5 t housandtons in 2005. The new ly added out -put is m ost ly f or export . The ex port

am ount o f p inacolone in China w asaround 1 t housand t ons in 2005, anin cr eas e o f nearl y 500 t o ns ov er2004. I t is ex pected t hat t he outputof pinacolone in China w il l sti l l main-t ain a robust increase in t he nex t 5y ear s an d t h e av er ag e an n u algrow th w i ll be h igher t han 15%.

I nadequate raw material supply

The pinacolone production in Chinam os t l y us es i so p en tene as rawmaterial . I sopentene accounts f or 1%-3% of the feedstock in catalytic crack-ing un i ts of ref ineries and 10% - 30%of C5 resources. Due to problem s intechnology and economics, however,the comprehensive util ization of C5 re-sources includ ing isopentene is sti ll att he ini t ial st age in China. The outputis on ly several t housand tons a year.There is a serious supply defici t and adrastic price fluctuat ion in t he domes-t i c m ark et . T h e u n cer t ai n t y i nisopentene im port sources is the ma-jor factor f or t he price f luct uat ion int he p inacolone market . The price ofp inacolone in t he dom est ic marketw as RM B28 000 - RM B36 000 per tonin 2005. Wi th advances in the com pre-hensive uti lization of C5 resources, t hesupply def ici t of p inacolone w i l l begradually eased and both t he supplyand t he price w i ll becom e stab le inthe next f ew years.

Epichlorohydrin Demand Increases RapidlyBasic supply/demand balance

in the world

Th e capaci t y o f ep i ch lo ro hy dr in(ECH) in t he w orld w as m ore t han1.3 m i l l ion t / a in 2005. 62% of t hec ap ac i t y w as d is t ri bu ted i n t h eUni t ed States, Western Europe andJapan. The capaci t y in Dow, Solvayand Shel l accounted f or around 51%of t he world to t al .

M ajor ECH export count ries in thew o rl d are t h e Uni t ed States andJapan. Asia and Eastern Europe arem ajo r im port reg ions . The su pply

The Uni t ed States, Western Europeand Japan are m ajor consum pt ionregi ons. Wi t h t he developm en t o fepo x y r es i n and p ol y car bo n at e

and t he dem andi n West er n Eu -r o p e are b as i -ca l l y ba lanc ed .There is an over-a l l s u p p l y/ d e-m and balance int he w orld t oday.

Table 1 Major ECH Produ cers in China (thousand t/a)Producer Capaci ty

Chlor-Alkal i Plant o f Sinopec Qi lu Petroc hemical Co. 32

Epox y Res in Plant of Hunan Yuey ang Petrochemical Co. 34

Tianjin Chemic al Plant 28

Shandong Dongy ing Liancheng Chem ical Co. 20

Total 114

Source: CNCIC Chemdata

ν

CHINA CHEMICAL R EPORTER August 16, 2006 17

OrganicsMARKET REPORT

sectors, the dem and of ECH in A siaan d esp ec ial ly Ch in a i s gro w i ngrapid ly. The apparent consum pt ionof ECH in China reached 200.4 t hou-san d t o ns i n 2005, an i ncrease of17.5% over 2004.

Serious supply deficit in China

China has 4 ECH producers t odayw it h a t ot al capaci t y o f 114 t housandt / a. The out put was on ly 90 t hou-sand t ons in 2005 and f el l f ar shorto f t he domestic m arket dem and. Thepr oduc t se l f -s uf f iciency rat e w asonly 44.9% in 2005 and im port hadto be m ade i n great q uant i t ies t obridge t he supply def ici t in t he do-m est ic m arket . Th e h ug e m ar k et d ef i ci t , t h esou nd dev elopm ent pro spect andthe sat isf actory prof i t m arg in haveat t r acted m any d om est i c f i rm s t oconst ruct new ECH uni t s. JiangsuYangnong Chem ical Group st art edto make access t o t he ECH m arket .I t s 30 t housand t/ a ECH uni t is ex -pec ted t o s t art pro duct ion in t hesecond hal f o f 2006. Jiangsu A nponElect roch em ical Co., L t d . also in-t ends t o invest RM B260 m i l l ion int he const ruct ion of a 20 t housand t /a ECH uni t . The pro ject passed t heev al uat io n o rg ani zed b y Jiang suEn vi r onm ent al En gin eer ing Co n-su l t ing Center in early 2006. Con-st r uct i on has al r eady st ar t ed andthe pro ject is ex pected t o com pletean d p ut on st ream in Jun e 2007.Blu estar New Chem ical M ateri alsCo., L t d. launched a 30 t housand t /a ECH pro ject in Yancheng, Jiangsup ro vi nc e i n Ju ly 2006. W i t h t h ecom plet io n of t hese pro ject s, t hesupply def ici t o f ECH in China w i l lbe eased in t he nex t f ew years.

2003/5 Monthly Average Price of ECH in Shanghai Market (RMB/ton)

Source:CNCIC Chemdata

9000100001100012000

130001400015000

160001700018000

1900020000

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

2003 2004 2005Rapid demandgrowth

(1) E pox y r esi n :The m ajor consum p-tion sector for epoxyresi n is t he e lec-t r o n i c / e l e c t r i csector. O ther con-sumpt ion sectors in-clude coatings, com-p os i t e m at er ia ls ,construct ion m aterials and adhesives.These sectors have developed rap id lyin recent years and thei r demand ofepox y resin has increased constantly.The demand of ECH in epoxy resinreached around 180 t housand tons in2005. It is ex pected t hat epoxy resinw i ll remain t he m ajor consum ptionsector f or ECH in the next few years. (2) Sy nt het i c g l yc er in : The g lyc-erin product ion in China main ly usesthe f at hydro lysis process. The de-mand of ECH in t his sector wi ll there-f ore have no great increase. ( 3 ) C h l o r h y d r i n r u b b e r :Chlorhydrin rubber is a new variet yof synthet ic rubbers. I t has com pre-hens ive p rop er t ies suc h as heatresistance, oi l resistance, w eather re-sist ance and oxidat ion resistance andis extensively used in automobi le, avia-t ion and spacefl ight sectors. The do-m estic demand is main ly sat isfied byimports t oday. The consum pt ion ofECH in the chlorhydrin rubber sectorwas around 4 t housand t ons in 2005. (4) O t h ers : The consumpt ion ofECH in other sectors such as glycidolether, paper addi t ives, flam e-retard-ing agent s, ion ex change resins andsurf actant s w as around 8 thousandtons in 2005. ECH in China was mainly used in

the product ion of epoxy resin and syn-t het ic glycerin in the past and sm al lam ounts were also used in the synthe-sis o f chlorhydrin rubber. Owing t o t heconstant application ex pansion anddrast ic dem and i ncrease of epox yresin , the consum pt ion proportion ofECH i n ep ox y resin has reach edaround 90%.

Heavy import dependence

A ccord ing t o the custom s statistics,t he t ot al im port am ount o f ECH inChina w as m ore than 110 t housandtons in 2005, an increase of 13.3% over2004. The im port amount accountedf o r 5 5 . 3 % o f t h e a p p ar e n tc on su m pt io n . Based o n i m p or tsources, the im port was mainly madefrom Japan, Korea, Russia and Taiw anprovince. The price of ECH in China has pre-sented an overall rising t rend in recentyears. The price of im port s produces agreat impact on the dom estic m arket.The price of ECH in China had no greatfluctuations in the fi rst half of 2005. TheMinistry of Com merce made a prelim i-nary rul ing on September 21st , 2005.I t was def ined that there w as dump-ing in t he im port of ECH originatedf rom Russia, Korea, Japan and t heUni t ed States and i t w as decided t otake t emporary antidumping measuresi n t h e f o r m of g uaran tee f u nd .(CCR2005, No. 28) The price of ECH int he domest ic m arket st art ed t o risesharply and has been m aintained at ahigh level ever since.

Table 2 Supply and Demand of ECH in Ch ina in Recent Years (thousand tons)Year 2001 2002 2003 2004 2005

Output 44.7 60.0 90.0 73.0 90.0

Import 35.5 43.7 69.1 97.7 110.8

Ex port 0.7 0.2 0.3 0.2 0.4

Consumption 79.5 103.5 158.8 170.5 200.4

Source: CNCIC Chemdataν