'Phthalic Anhydride Markets Could to See Significant Capacity Build-up'

India’s phthalic anhydride (PAN) markets could see a significant increase in capacity if plans by the existing local producers go through to fruition. While two projects are currently under implementation – one each by Thirumalai Chemicals Ltd. (TCL) and IG Petrochemicals Ltd. (IGPL) – market sources point to additional investments in the planning stages, including by some of the smaller producers of end-use products.

PAN is an important commodity chemical used to make, amongst other things, plasticisers, resins and pigments. India’s annual demand for PAN is estimated at about 350,000-tonnes, with a growth of about 4.5% per annum. The markets are presently served mainly by production from TCL and IGPL, but an additional 120,000-tonnes is currently imported annually, encouraged by the zero duty Free Trade Agreements (FTAs) with Korea and the countries in ASEAN.

Prices have remained low and margins negative for the last two decades, except for the last two years, when a combination of factors have improved business prospects. But all that could change, if all the projects that are now being implemented or talked about are implemented.

New capacity

Domestic production of PAN is about 350,000-tonnes, but the two large domestic manufacturers have already started last year on significant additions – IGPL with a 50,000-tpa brownfield unit at its existing site in Taloja, near Mumbai; and TCL with a 60,000-tpa unit in Dahej, Gujarat. Both units are planned for start-up in early 2019.

Now there is talk of another 90,000-tpa unit by one of these majors, reportedly in alliance with another large regional producer. There were rumours of such an investment early last year, and these appear to have revived again. Were this to happen, the industry would be adding another 200,000-tpa, which, by current trends, would flood the market up to 2028.

But, this is not all. There have been reports that three consumers of PAN – two of them pigment manufacturers and the third a plasticizer company, are also sniffing at PAN projects. “With the minimum viable capacity nowadays at 50,000-70,000 tonnes per annum and costing over $70 million, even one of these plants would create a glut that would drive the industry back to the red ink of the last 20 years,” an industry player told Chemical Weekly.

“PAN plants are also large units and need good technology and experienced management to operate efficiently and compete. With the demise of the licensing companies, good PAN technology has moved captive to producers like BASF in Europe or to the domestic producers, none of whom licenses. These could present significant challenges to any new entrant, unless they join up with an existing producer,” the source added.

Raw material linkages

Another problem facing new projects could be raw material linkage. o-Xylene (OX) markets are already very tight in Asia, and in India Reliance Industries Ltd. is producing much less than it did before and fully committed to existing customers, even with exports declining. Furthermore, the global shift from naphtha cracking to gas cracking – driven by the availability of shale gas – could constrain further availability of OX – with all aromatics available being sucked away for making p-Xylene (PX), the key raw material for purified terephthalic acid (PTA), a polyester intermediate.

All of these points to very interesting times for the PAN industry.