US Butane-Based Project Fails to Launch But Asia Hits the Jet Stream

After several months of speculation in the US maleic anhydride community that suggested that Indian maleic and malic producer, Thirumalai Chemicals, was going to make a foray into the North American market, this topic seems to have cooled.

The idea that the heat was off a possible US venture came after approvals at a Board meeting on 19 October, that showed a strong commitment to growth at existing sites in Asia and no investments, at this point, outside the region.

India’s Thirumalai Chemicals has received Board approval for several projects, including expansions of its maleic and phthalic anhydride and several derivatives plants, with investments in both India and Malaysia.

In Malaysia, in addition to a recent expansion of maleic anhydride that has already been completed in September, the company’s subsidiary, Optimistic Organic (OOSB), has decided to move ahead with a 30ktpa expansion at its existing maleic facility. Thirumalai expects to have internal use for derivatives for about half of this maleic, with most of the remaining 15kt expected to be shipped for sale to India. This project is expected to be completed in the next two to three years.

A more immediate project is a 12.5 ktpa of Malic acid and 10ktpa of maleates to be commissioned in the next 12-14 months.

“These projects would consume the energy surpluses from the MAn, and would be fully integrated butane to maleic derivatives,” a company source reported. The malic market is estimated to be growing at about 4% per year, globally. The maleates will serve the growing emulsions Market in the region and in South Asia. The company has its own gas fractionation and isomerisation capacity on site.

The integration delivers significant cost and operating efficiencies, the spokesman added. The company has been studying a malic /fumaric/ succinic project in North America, but there does not appear to be a final decision yet on this project.

The company’s Indian malic plant has been debottlenecked, and should reach an operating rate of around 9.5 ktpa by the end of November. A further addition at this site is now under construction, and will bring capacity from around 9.5 ktpa to around 13ktpa by June 2017. A phthalic expansion has also been approved, which will bring the capacity to 170 ktpa in the south India site; completion of the first of two phases is expected in the next 15 months. The downstream phthalic derivatives in this location are also being expanded by about 40%.

image005A company spokesman said most of these investments would be internally funded, and use the companies own processes and expertise.

So, why the focus on Asia, rather than the US? Better turn the question around: why was there ever a focus on the US? It makes so much sense to expand on the existing assets in the Asian region where demand growth is the greatest and the company already has market knowledge and a strong sales network. So the current announcement is not so surprising. But was the US exercise a wild goose chase? And is this wild goose now a dead duck?

The answers to these questions are: “No”. And, “Perhaps”. First, was it always an exercise doomed to failure? No, certainly not. Just over a year ago, in mid-2015, the price of US n-butane was close to half the price of Saudi Aramco mixed butanes (the basis for Asian n-butane pricing). This certainly made the production in the US of a butane based chemical like maleic anhydride and its derivatives attractive. It also meant that US maleic derivatives were competitive with Canadian product and left some room in margins to transport product outside the US market.

In addition, the very limited number of producers of malic acid globally, and the even smaller number now participating in the North American market make it possible that a new entrant with efficiencies of scale, upward integration, and market knowledge could be successful. There are North American malic acid producers, such as Tate and Lyle, without upward integration and there has been some question about how competitive they are. A new entrant, with global experience and the right feedstock deal could have had a strong possibility of being strongly competitive.

As for the second question, this is harder because it involves the future – always a tricky place to go. Is this project dead? I have said, “Perhaps”. But in fact, I think the answer is “no”. It is not dead, yet. The fate of such a project depends fundamentally on the relative price of butanes. As mentioned above, the price of n-butane in the US last year was around half of that of mixed butanes in Asia. Today, these prices are about the same (US price: $362/ton October 2016; Saudi Aramco price: $370/ton October 2016).

The future of butanes pricing around the world depends largely on what happens to crude oil. If crude oil prices rise substantially, US n-butane suppliers could find themselves back in a position of strength with a much cheaper price than that of mixed butanes in Europe and Asia. In this case, the prospects for gas-based projects in the US could be revived again. I would certainly not yet ring the funeral bell for this project, although admittedly it isn’t looking very healthy just at the moment.

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