Business
Fiber raw materials follow fibers downturn Intermediates for polyester
expansion. Now, a year later, fashion and the world economy have the shakeout going again. A case in point is Celanese's decision to shut down 200 million lb per year of capacity for polyester filament beginning this August (C&EN, May 31, page 7). Although this capacity is relatively small in the total, it does mean some decline in demand for polyester ingredients, DMT/PTA and ethylene glycol derived from ethylene oxide. Similarly, Du Pont's plans to reduce its nylon fiber production will
and nylon—DMT/PTA, ethylene oxide, and cyclohexane—lose volume and value in recession Bruce F. Greek C&EN, Houston
Bare legs, old clothes, and expensive mortgages are the plague of synthetic fibers and, in turn, the chemicals that go into them. Inexpensive fashions and a recession-torpedoed housing market will make 1982 another down year for major organic chemicals used primarily in synthetic fibers. The prospects for 1982 and beyond for dimethyl terephthalate and purified terephthalic acid (DMT/PTA), ethylene oxide, and cyclohexane are bleak. Combined U.S. production will decline this year and selling prices remain low in spite of efforts to raise them, leaving total value and profits in shambles. This outlook relates directly to a continuing shakeout in the synthetic fibers business. A year ago, it was viewed generally that fibers had completed a heavy round of plant shutdowns and company exits, leaving capacity quite lean and financial prospects bright in the next economic
Key Chemicals reduce demand for raw material cyclohexane. Merchant sales of cyclohexane to Du Pont will decline further next year when the company completes it own unit to make part of its cyclohexane requirements. The continuing shakeout in fiber capacity leads to a serious question of whether sufficient capacity remains to meet future demand. Not everyone agrees on this point, with some expecting an upsurge in demand to cause shortages because of limited capacity. Others, however, expect that capacity could expand quickly to meet demand. Although there might be a fiber capacity problem, few in the industry
H
Plant capacity use drops this year for all three % use of nameplate capacity 100 90 80 70 60 50 40 1979
80
81
DMT/PTA
82
1979
80
81
82
Ethylene oxide
Sources: Industry and C&EN estimates; International Trade Commission
8
C&EN July 5, 1982
1979
80
81
Cyclohexane
82
anticipate a capacity problem for fiber raw materials. Currently, operating rates for plants making DMT/PTA, ethylene oxide, and cyclohexane are quite low as inventories are worked off. Some pickup in operating rates is expected later in the second half of 1982, which would push the average rate for the year higher than it has been recently. The worst prospects seem to be for cyclohexane, which may have an average 1982 operating rate of less than 50% of nameplate capacity. This means, of course, that much capacity actually will be shut down during 1982. Longer-term prospects are not very good either, with average annual production gains for the rest of the 1980s at about 2%. The longer-term outlook for polyester materials is a little better but not much, because their end uses have low growth rates in all but bottles and a few other small nonfiber uses. Ethylene oxide's other major use, antifreeze via the glycol, will at best about match fiber growth because of changes in automobiles and driving habits. Since operating rates for DMT/PTA and ethylene oxide are expected to be 70 to 80% in 1982, with long-term growth rates of 3 to 4%, capacity for these materials could begin to fall short of demand in the second half of the 1980s. But far more important to producers this year is the anemic state of profit. Combined production will be down, perhaps as much as 600 million lb, or 5%, from 1981 output of 12.5 billion lb. Total value, because of selling price declines, could be down $1.5 billion, or 30% from the early estimate of $5.1 billion for 1981. Partially offsetting the large value decline is a decline in most raw materials costs. Ethylene's price, for example, has tumbled from about 25 cents a lb to 18 cents, or nearly 30%. Benzene, the major-cost item in cyclohexane raw materials, has declined more than 15%. Whether selling prices of these intermediates will decline further as such raw materials' prices decline is a matter of argument. The aromatics seem less likely to decline. Ethylene, too, could be at a bottom as supplies of low-cost raw material ethane start to expire.
r
Key Chemicals
DMT/PTA • Demand well down
U.S. producers of dimethyl terephthalate (DMT) and purified terephthalic acid • Capacity level (PTA) are playing recession poker in 1982 without the ace up their sleeve that • Prices on hold let them score surprisingly high in 1981. The odds are against them, even though they might outplay producers of many other organic chemicals. PRODUCTION/CAPACITY Luck has been oddly fickle for DMT and PTA over the past several years. Ups and downs seem to alternate no Billions of lb matter what the general economy does. 10 Production For example, producers this year face 6 Capacity an outcome similar to 1980 instead of 1981. Total production of these two derivatives of p-xylene could drop this year to as low as 5.2 billion lb. In 1981, despite the sharp U.S. recession beginning in late summer, DMT/PTA output rebounded to 5.7 billion lb because of an export boomlet. This rebound followed a recessionary decline to 5.4 billion lb in 1980 after production peaked at 5.7 billion lb in 1979. If this choppy pattern holds, producers could look toward an1980 1981 1982 other gain in 1983. (These data are industry estimates, a Total for both DMT and PTA. b First quarter. which run 10 to 20% below official government figures. Government staHOW MADE tistics are considered too high because Oxidation of p -xylene and concurrent of double counting of DMT and PTA.) esterification to make DMT; oxidation Because of four years (through 1982) of no new growth in production for DMT of p -xylene to make PTA and PTA, earlier forecasts for these materials obviously look bad—as do MAJOR DERIVATIVES (U.S.) forecasts for many other major organic chemicals. Some of these earlier forePolyethylene terephthalate 95%, casts included predictions that additional polybutylene terephthalate 5% capacity would be coming on stream from now through 1984. Undoubtedly, if demand had kept going as it had in the MAJOR END USES (U.S.) 1970s, more capacity would have been Polyester fibers 80%, films 10%, needed by now. bottles, other fabricated forms 10% Fortunately, cool heads prevailed, and no major capacity has been added in the past two years. None is being built now FOREIGN TRADE except for minor gains that are really Exports—300 million lb, imports— by-products of efficiency campaigns. negligible This lack of added capacity probably will allow producers to operate nameplate capacity of 7.4 billion lb per year PRICES at about an average rate of 70% during List prices about 35 cents per lb for 1982. This will be down from an estimated 78% in 1981. Although neither of DMT and 38 cents per lb for PTA these rates is a real money-maker for producers, they are fairly good these COMMERCIAL VALUE days for organic chemicals. The 1981 operating rate was spurred $ 1.75 billion for production, 1982 by larger-than-expected exports of de-
i i i i
C—O—CH3 DMT
O
C—OH PTA O
rivative polyester, both as fiber and the precursor chips. Exports of DMT and PTA themselves probably were down in 1981 from more than 400 million lb in 1980. At least another 600 million lb (in terms of DMT/PTA) was exported in the form of fibers. Polyester film and molding resins added a small amount. This year, mainly because of economic changes in various countries and startup of local plants producing DMT, PTA, and polyesters in fabricated forms, U.S. exports are expected to decline substantially. The variables here are many. Long-term operability of the new foreign plants could influence U.S. exports either way: Greater than expected success could mean lower U.S. exports, but startup troubles could keep exports high. The net effect on DMT and PTA production in the U.S. could be between 200 million and 600 million lb. Polyesters will have a diverse market situation in the U.S., too. The bright spot will be the much-talked-about bottle resins. The darker side will be the fibers business. Bottle resins continue in strong development along with many auxiliaries, especially bottle-making machines. Capacity to make bottle resins seems sufficient, owned mainly by polyester producers. Boosting machines' bottle production rates is now the main challenge to reducing costs in making small-sized polyester bottles. The fiber side of polyester will not match 1981 demand in 1982—for many reasons. One is that the price of competing cotton has declined roughly a third from its peak, even though cotton futures currently are rebounding. This makes cotton relatively more attractive in blends with polyester. The lower cotton price also tends to make allcotton garments cheaper to produce, allowing firms more promotional money to push sales. Another factor is a continued shift toward informal clothes, which has cut into sales of polyester blends with wool. U.S. consumption of DMT and PTA as a polyester fiber could be off 100 million lb in 1982. On balance, the 1982 outlook for DMT and PTA in the U.S. calls for a rough balance between a gain in bottles and other nonfiber uses and a decline in fibers. The real blow is expected in derivatives exports.
July 5, 1982 C&EN 9
Key Chemicals
CH 2 —-^CH 2
Ethylene Oxide • Demand flat • Capacity back up • Prices badly discounted PRODUCTION/CAPACITY Billions of lb 8 • Production 13 Capacity3 6
p££33
rs ",T
JH m
—
4
—^K^
2
^^^Eb»^
0 1980
1981
1982
a First quarter. Note: Capacity figures exclude units indefinitely shut down, about 0.5 billion lb in 1982.
HOW MADE Vapor-phase oxidation of ethylene with oxygen or air
MAJOR DERIVATIVES (U.S.) Ethylene glycol 60 %, ethoxylates 10%, glycol ethers 10%
MAJOR END USES (U.S.) Polyester fibers and films 30 %, antifreeze 25%, surfactants 10%
FOREIGN TRADE Exports—small, decreasing; imports—small, possibly increasing
PRICES List prices up to 45 cents a lb, with discounts up to a third of list
COMMERCIAL VALUE $1.5 billion for production, 1982
10
C&ENJuly5, 1982
Like a ship traveling through a storm on gyroscopic control, ethylene oxide is displaying notable stability for an organic chemical in the current severe recession. Production and plant capacity aren't growing, but they aren't in danger of capsizing either as are a great many other products. And capacity use in operating units has stayed decently high. True, ethylene oxide's merchant price is in shambles, but its open-market sales are small. This doesn't mean, however, that ethylene oxide is steaming through a great year. To producers, 1982 marks the third straight year on a plateau about 9 % below the product's 1979 record production of 5.7 billion lb. The range of volume estimated for 1982 is remarkably small. Analysts say that if the economy does a modest turnaround in the second half, aiding automobile sales and housing, production of ethylene oxide could reach 5.2 billion lb. If there is no such bounce, production likely will run 5 billion lb or a bit less. Since production topped out in 1979, it has fluctuated around 5.2 billion lb. Most industry sources don't expect to see the 1979 mark exceeded until 1983, if then. But production won't decrease much either, because ethylene oxide has staying power in the event of a renewed downturn. Assuming production stays in the expected range in 1982, ethylene oxide plants will run at an average rate of about 8 0 % of operable nameplate capacity for the year. Capacity as the year opened was about 6.3 billion lb. This capacity figure has become an elusive item in recent years. Some capacity, nearly 1 billion lb out of a nominal total of 6.8 billion lb, has been shut down so long that few people expect it to run again. Other capacity continues to grow without plant additions because of process technology improvements, especially catalyst changes. To complicate things a bit more, some of the shutdown capacity, possibly 300 million lb per year, will materialize again as PPG Industries, in cooperation with Du Pont, moves a unit from Puerto Rico to Beaumont, Tex. So next year, thanks to debottlenecking, technology improvements, and startups, capacity probably will increase 300 million lb, or about 5 % , to 6.6 billion lb.
Ethylene oxide has one dominant use, ethylene glycol, which in turn has two major outlets in polyesters and antifreeze. Ethylene glycol takes 6 0 % of ethylene oxide production, with much of the conversion done in units right next to oxide units. All ethylene glycol producers make ethylene oxide. Many appear to have enough nameplate capacity in excess of glycol needs to make some sales in the merchant (open) market. Of the glycol's two major markets, polyester continues to get the nod as the main future growth outlet for ethylene oxide. Even so, polyester fibers aren't doing well. They currently have a bit more competition than usual, since cotton prices, even after a slight rebound, are relatively low. This induces textile producers to increase the cotton content of polyester-cotton blends. Somewhat offsetting the cotton price have been low prices for polyester's raw materials, ethylene and p-xylene, as a result of the slump in crude oil prices. Polyester fibers have another problem in 1982 because of a decline in exports. However, polyester bottle resin likely will provide enough growth to have a favorable impact on total polyester use of ethylene oxide. If the decline in exports proves larger for the entire year than now forecast, then the bottle resin use will not be big enough to offset total fiber decline. This scenario leads to some industry estimates that 5 billion lb might be all the ethylene oxide produced in 1982. Antifreeze continues to disappoint producers and forecasters. This year "original fill" demand fell below expectations because of a decline in both size and production of U.S. cars. Replacement antifreeze demand also has not come up to expectations even with increased car life. Another flat year for antifreeze seems likely. Weak demand for ethylene glycol derivatives carries back to the oxide in downward price pressure. Although ethylene oxide's merchant volume is only roughly 10% of production, competition has forced horrendous (up to one third) discounts this winter and spring from list prices of typically 45 cents per lb. Small increases in real selling prices were attempted as the third quarter opened, but it is too early to tell if the increases will hold.
Key Chemicals
Cyclohexane • Demand way down • Capacity also down • Prices fluctuating PRODUCTION/CAPACITY Billions of lb Production Capacity3
1980
1981
1982
a First quarter.
HOW MADE Catalytic hydrogenation of benzene; recovery from natural gasoline
MAJOR DERIVATIVES (U.S.) Adipic acid 60 %, caprolactam 30 %
MAJOR END USES (U.S.) Nylon 66, 60%; nylon 6, 30%
FOREIGN TRADE Exports—may recover after large decline in 1981, imports—negligible
PRICES $1.64 per gal list; follows benzene price, currently with small discount
COMMERCIAL VALUE $375 million for production, 1981
Cyclohexane is one of the disaster zones in organic chemicals this year, dealt an exaggerated blow by the recession through crippled end-use markets in housing and clothes. If that weren't enough, the product faces a plant shakeout in the next few years because of demand shifts and a basic change in raw material hydrogen costs. Cyclohexane production will be down as much in 1982 as it was in 1981. More than 600 million lb less product is being produced during these two years as output drops from 1.96 billion lb in 1980 to about 1.5 billion lb this year. At the same time, plant capacity is off nearly 300 million lb per year because of an exit by financially troubled Commonwealth Oil in Puerto Rico. At the beginning of 1982, the industry's cyclohexane capacity was about 3.1 billion lb per year. Other production units are shut down temporarily or will be, much as in 1981. Total nameplate capacity will run at less than a 5 0 % rate on average this year. No additional capacity will come on stream in 1982. Du Pont's planned cyclohexane plant near Corpus Christi, Tex., with unconfirmed capacity of about 300 million lb a year, is due in 1983. This plant, marking Du Pont's entry into this business, will get its raw material hydrogen from the company's adjacent chlor-alkali plant. Such sourcing will give Du Pont, a large cyclohexane user, an advantage that most other producers do not have. Hydrogen could become a key factor in the future of cyclohexane capacity, according to some industry sources. Generally, a majority of cyclohexane is produced by units adjacent to oil refineries, where catalytic reforming units throw off coproduct hydrogen along with mixed aromatics streams. Refineries' own demand for hydrogen has escalated for hydrotreating heavier, more sour (higher sulfur content) crude oils. The coproduct hydrogen from reforming is considered low cost; thus refiners will use it as fully as possible before building a separate unit to make hydrogen. Hence, if the refiners' cyclohexane business brings a low return on investment because of relatively low prices and operating rates, refiners will tend even more to put hydrogen to other uses
and shut down cyclohexane units. As usual, the smaller units, except for those with special sales circumstances, are the prime candidates for closing. Recovery in demand for cyclohexane depends absolutely on nylon, its overwhelming end use. Nylon has been poor business in the past two years, because of the same depressed housing and clothing markets hurting other parts of the chemical industry. Optimistically, improvement in nylon and, in turn, cyclohexane, might bring a return to 1980 production levels by the end of 1983. After that, there could be slow average growth, possibly 3 % annually. Pessimists, however, expect a decade to pass before cyclohexane production again matches the previous high in 1979 of 2.4 billion lb. That pessimists seem to prevail is evidenced in nylon plant shutdowns, which have started again in recent months. Nylon's major use (nearly 60%) is in carpets, which are suffering from the decline in housing and in replacement of worn items. Cyclohexane does even worse than nylon and can't grow so much in the future. First, not so much cyclohexane goes into carpets proportionately as does nylon because some nylon is made using phenol raw material. Further, a shift continues toward use of alternative butadiene for making hexamethylenediamine, one component of nylon 66. Other uses for cyclohexane are small, mostly in solvents. None of these are believed to have much growth in the near future. Except for exports, cyclohexane is just about a one-outlet material. As goes nylon, so goes cyclohexane. Nylon's prospects are poor to fair depending on the end market. For example, in carpets, nylon continued to grow until the current recession, partly through capture of markets from other fibers. But in tire cord, nylon will continue to slip unless heavy-duty truck and off-the-road tires, a nylon preserve, take significantly larger shares of the total tire cord market. For the rest of 1982 and 1983, cyclohexane will have to hold onto a weak position at the beginning of a long pipeline to eventual durables consumers, who continue to limit their spending drastically.
July 5, 1982 C&EN
11
