Chemical Conversations: Exceptional capacity growth for hydrocarbon based tackifiers expected during 2018-25 period

Argus C5 and hydrocarbon resins expert Steve Williams discusses capacity growth and operating rates for hydrocarbon based tackifier production, including:

• The exceptional capacity growth for hydrocarbon based tackifiers during the 2018-25 period
• Recent and upcoming capacity additions highlighting the growth in China 
• The dramatic changes in hydrogenated hydrocarbon tackifier capacity since 2018 
• The repercussions of recent capacity growth on global operating rates for the balance of the decade  

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Transcript

Good day everyone and welcome to the September 2023 edition of our C5 and Hydrocarbon Resin podcast. This is Steve Williams, VP for C5 and Hydrocarbon Resins here at Argus. With the recent release of the 2023 Hydrocarbon Resin analytics, I thought it timely to provide an update on hydrocarbon resin capacity and operating rates, as well as highlight new capacity projects we see starting up over the next several years. 

2022 was another year of strong capacity growth in the global hydrocarbon tackifier business. Total combined capacity for C5, C9 and hydrogenated hydrocarbon tackifiers grew to 3,211 kilotonnes/yr in 2022 from 2,918 kilotonnes/yr in 2021, a growth rate of over 10pc, and well in excess of HCR demand growth for 2022, which was estimated at only 1.9pc. This continues a pattern we have seen since 2018 wherein capacity growth is far outpacing demand growth for hydrocarbon based tackifiers. Since 2018, total hydrocarbon tackifier capacity has grown by 34pc, while during the same period, overall demand has grown by just 18pc. As a result, we continue to see global operating rates continue to drop, from an average of 75pc in 2018 to the recent low of 66pc in 2022. With some of the new capacity additions we will discuss later, we expect these overall rates to drop further into the lower 60’s before slowing starting to recover later in the decade. And while water white tackifier capacity has undoubtedly been the focus of much of the capacity increase, C5 and C9 tackifier capacity has also grown during the same period. 78 pc of total HCR capacity now resides within Asia-Pacific and 58pc of global capacity within China. 

Let’s look a little closer at each family of HCR’s beginning with C5’s. C5 HCR capacity grew more slowly during the 2018 to 2022 period at close to global GDP growth rates, but a full year of operation for 2021 start-ups coupled with new capacity that came online during 2022 increased capacity by 11.8pc, a sizable increase. C5 HCR capacity reached 1,067 kilotonnes/yr in 2022. As is the case for all types of hydrocarbon tackifiers, nearly all of this capacity growth was based in China, where feedstocks remain readily available along with the sizable growth in naphtha-based ethylene production in the country.  More recent Chinese capacity additions include a doubling of capacity at Ningbo Jinhai, a new copoly line at Henghe in Ningbo, and two new C5 HCR trains at Derong on Zhoushan Island. We continue to see new HCR capacity in China for HHCR and C5 HCRs dominated by the larger more integrated players. With capacity growth far exceeding C5 HCR demand growth of 2.3pc during 2022, global average C5 HCR operating rates dropped noticeably during 2022 to 71pc from 77pc in 2021. We don’t expect global average operating rates for C5 HCR to exceed 75pc until later in the decade at the earliest. US operating rates are expected to remain the highest globally. 73 pc of C5 HCR capacity now resides within Asia-Pacific and 59pc within China itself. C5 HCR represents 33pc of global HCR capacity. 

We turn to C9 HCR’s next. C9 HCR capacity grew the slowest of the tackifier families and actually shrank during the 2018 to 2021 period by 4.2pc, but a full year of operation for late 2021 start-ups coupled with new capacity that came online during 2022 increased capacity by 8.4pc during 2022, a sizable increase for C9 HCRs. C9 HCR capacity reached 1,028 kilotonnes/yr in 2022. All of this capacity growth was based in China, with C9 feedstocks more readily available from naphtha-based crackers.  More recent Chinese capacity additions include increased capacity at Henghe in Ningbo in late 2021, and a new thermal C9 HCR line in Inner Mongolia. Unlike C5 HCR and WW HCRs, there are a large number of smaller players for C9 HCR production in China, but like the other tackifiers, we expect this to consolidate to fewer larger players as time progresses. With C9 HCR capacity growth far exceeding demand growth of -1pc during 2022, global average C9 HCR operating rates dropped during 2022 to 61pc from 67pc in 2021. We do not expect global average operating rates for C9 HCR to exceed even 65pc until later in the decade at the earliest. European operating rates are expected to remain the highest globally, although these will drop significantly for 2023 and probably 2024 due to feedstock impacts on Estonian production from the Russia-Ukraine conflict and subsequent sanctions on feedstock. 83 pc of C9 HCR capacity now resides within Asia-Pacific and 71pc within China itself. C9 HCR represents 32pc of global HCR capacity. 

Last but certainly not least are the waterwhite or HHCR family of tackifiers. HHCR capacity grew by far the fastest of the tackifier families during the 2018 to 2021 period with 82pc growth and coupled with a full year of operation for late 2021 start-ups and new capacity that came online during 2022 meant capacity increased by a further 9.8pc during 2022. Waterwhite capacity reached 1,116 kilotonnes/yr in 2022. All of this capacity growth was based in China, with C9 or DCPD feedstocks more readily available from naphtha-based crackers. More recent Chinese capacity additions include sizable increased capacity at Henghe in Ningbo in late 2021, a full year of operation at an expanded Ningbo Jinhai, and the new Wuhan production from Luhua. We already see the HHCR’s as the most consolidated of the HCR markets, with even fewer larger players likely to remain as time progresses. With HHCR capacity growth far exceeding demand growth of 4pc during 2022, global average HHCR operating rates dropped during 2022 to 66pc from 71pc in 2021. HHCR operating rates were 91pc as recently as 2018, highlighting the explosive capacity growth we have seen in this market. Operating rates will drop further over the next several years, and we don’t expect global average operating rates for HHCR to exceed 65pc until the end of the decade at the earliest. US operating rates are expected to remain the highest globally, helped in part by the tariffs that remain in place for imports of Chinese HCRs. HHCR capacity now represents 35pc of global HCR capacity, up from just 23pc in 2018. 

Contributing to the ongoing saga of more capacity and lower operating rates are a number of new projects that have or will come to fruition over the next several years. This begins with a number of HHCR start-ups, all of them in China, occurring very late 2022 and during 2023. Xiamen Zhongyi (more commonly known as the Ecogreen plant) started up 20kT of expanded capacity in late 2022.  Tianli is expected to start up a 30kT DCPD based unit shortly at Dushanzi City. Luhua is expected to start-up WW production at a new 30kT unit at Zhangzhou very late this year. Henghe, the world’s largest HCR producer, should bring an additional 30 kT of DCPD based production online at Ningbo late this year with another 60kT of capacity to follow very late in 2024. 2025 and 2026 should see substantial additional HHCR capacity from Henghe at the new Tianjin site, with a total of 160kT of new waterwhite capacity. With all these additions, it is not hard to see why operating rates have dropped dramatically for HHCR operations and are poised to drop even further before recovering. There will be several new C5 HCR capacity additions as well. Luhua will start-up a new 36kT C5 HCR unit at Zhangzhou over the next month or two, taking feed from the adjacent isoprene unit on-site. As part of their Tianjin project, Henghe is expected to start-up 40kT of C5 HCR production during 2025/2026. At present, we do not see any new C9 HCR projects, which current producers may be thankful for given the severe overcapacity in that market.

Combined with what has been a weaker market for most tackifiers during later 2022 and 2023 YTD, we are obviously going through a very challenging period for tackifier producers, but we do not see overall operating rates recovering for some time. Within China, operating rates often follow more of a dumbbell appearance, with larger, more integrated producers running higher than average rates, and smaller producers who often have to buy their feedstock in the spot market running at lower rates. We eventually expect more capacity rationalization to occur, particularly in the Chinese C9 HCR market where many of the producing assets are smaller and older. Until that time, competition for sales will remain intense, and margins likely to remain more depressed. Many of the legacy HHCR producers in particular can remember a time not that long ago when sales margins for HHCR were much much stronger. 

Operating rates and capacities for HCR producers around the globe are covered in more detail in the recently released 2023 HCR analytics. 

I hope you have enjoyed this podcast, and feel free to reach out to me with any questions you may have. Goodbye until next time.