Cellulose ether: significant impact from upstream raw materials, continuous growth in downstream market

The main raw materials for cellulose ether include agricultural and forestry products, including refined cotton, as well as chemical products including epichlorohydrin. Refined cotton is made from cotton linters, which are abundant in China's cotton production areas, mainly concentrated in Shandong, Xinjiang, Hebei, and Jiangsu. The source of cotton linters is very rich, and the supply is sufficie

 

Cellulose ether is a type of naturally derived polymer material with characteristics such as emulsification and suspension. Among many types, hydroxypropyl methyl cellulose ether or HPMC is a high-yield and widely used material, and its production is rapidly increasing.

In recent years, thanks to the growth of the national economy, China's production of cellulose ethers has increased year by year. At the same time, with the development of domestic scientific and technological capabilities, high-end cellulose ethers that used to require large imports are gradually being domestically produced, and the export volume of domestic cellulose ethers continues to rise. Data shows that from January to November 2020, China's cellulose ether exports reached 64,806 tons, a year-on-year increase of 14.2%, higher than the total annual export volume in 2019.

Cellulose ether is affected by the upstream cotton prices

The main raw materials for cellulose ether include agricultural and forestry products such as refined cotton, as well as chemical products including epichlorohydrin. The raw material for refined cotton is cotton linter, which is abundant in China with production areas mainly concentrated in Shandong, Xinjiang, Hebei, and Jiangsu. The source of cotton linter is very rich and supply is adequate.

Cotton accounts for a relatively large proportion in the structure of commodity agricultural economy, and its price is influenced by various factors such as natural conditions and international supply and demand. Similarly, chemical products such as epichlorohydrin and methyl chloride are also affected by international crude oil prices. Due to the large proportion of raw materials in the cost structure of cellulose ether, the fluctuation of raw material prices directly affects the sales price of cellulose ether.

In dealing with cost pressures, cellulose ether manufacturers often transfer the pressure downstream to the industry. However, the effectiveness of transfer is affected by factors such as technological product complexity, product diversity, and product cost-added value. Typically, enterprises with high technological barriers, rich product diversity, and high added value have greater advantages and can maintain a relatively stable gross profit level. Otherwise, enterprises need to face significant cost pressures. In addition, if the external environment is unstable, and the product fluctuation range is large, upstream raw material enterprises are more willing to choose downstream customers with a large production scale and comprehensive strength, in order to ensure timely economic benefits and reduce risks. Therefore, this to some extent limits the development of small-scale cellulose ether enterprises.

Downstream market structure

With the continuous advancement of science and technology, the downstream demand market is growing, and the downstream application scope is expected to continue to expand, resulting in steady growth of downstream demand. In the downstream market structure of cellulose ether, building materials, petroleum extraction, and food occupy the main position. Among them, the building materials industry is the largest consumer market, accounting for more than 30%.

The construction industry is a major consumption area for HPMC products

In the construction industry, HPMC products play an important role in bonding and water retention. Mixing a small amount of HPMC with cement mortar can increase the viscosity, tensile and shear strength of cement mortar, mortar and adhesives, thus improving the performance of building materials, enhancing construction quality and mechanical construction efficiency. In addition, HPMC is an important retarder for producing and transporting commercial concrete, acting as a water-retaining agent and enhancing the rheology of concrete. Currently, HPMC is the main cellulose ether product used in construction sealing materials.

The construction industry is a key pillar industry of China's national economy. Data shows that the construction area of residential buildings has increased from 7.08 billion square meters in 2010 to 14.42 billion square meters in 2019, which has greatly driven the growth of the cellulose ether market.

The overall prosperity of the real estate industry has rebounded, with increases in both construction and sales areas compared to the same period last year. Public data shows that the monthly year-on-year decline in new construction area of residential properties in 2020 continued to narrow, with a year-on-year decline of 1.87%. In 2021, the trend of recovery is expected to continue. From January to February of this year, the growth rate of sales area of residential properties in commercial housing rebounded to 104.9%, with a considerable increase.

Oil drilling

The drilling engineering services industry market is particularly influenced by global exploration and development investments, with around 40% of the global exploration investment portfolio being used for drilling engineering services.

In the oil drilling process, drilling fluid plays an important role in carrying and suspending cuttings, reinforcing borehole walls and balancing formation pressure, cooling and lubricating the drill bit, and transferring hydraulic power. Therefore, maintaining appropriate humidity, viscosity, flowability, and other indicators of drilling fluid is very important in oil drilling. And poly anionic cellulose (PAC) can play a role in thickening, lubricating the drill bit, and transmitting hydraulic power. Due to the complex geological conditions and difficulty of drilling in oil storage areas, there is a significant demand for PAC.

The pharmaceutical excipients industry

Non-ionic cellulose ethers are widely used in the pharmaceutical industry as excipients, such as thickeners, dispersants, emulsifiers, and film-formers. They are used for film-coating and binding agents in medicinal tablets and can also be used in suspensions, ophthalmic preparations, floating tablets, and more.

Due to the stricter purity and viscosity requirements for pharmaceutical grade cellulose ethers, the manufacturing process is relatively complex with more washing procedures, resulting in lower yield and higher production costs compared to other grades of cellulose ethers. However, the added value of the product is also higher. Pharmaceutical excipients are mainly used in chemical drug formulations, traditional Chinese medicine, and biological and biochemical products. Due to the late development of the pharmaceutical excipients industry in China, the overall level of development is relatively low, and the industry mechanism needs further improvement. In the total output value of domestic pharmaceutical preparations, the output value of domestic pharmaceutical dressings accounts for a low proportion of 2% to 3%, far below the proportion of foreign pharmaceutical excipients, which is about 15%. It can be seen that there is still a lot of room for development in the domestic pharmaceutical excipients industry, which is expected to effectively drive the growth of the relevant cellulose ether market.