This summer, the liquefied carbon dioxide and dry ice markets again suffered from a lack of balance between supply and demand, The Gas Review reports.
As the decline in sources of raw materials accelerated, plant troubles occurred one after the other at suppliers of raw gas almost across the country from early spring when companies had to work to increase stock levels toward high summer, forcing manufacturers to adjust shipments.
Chronic shortages in sources of carbon dioxide in recent years resulted from three main factors: a decline in sources of raw material itself, sporadic troubles at plants that supply the raw material and longer scheduled maintenance periods. But it is the decline in sources of raw material that is the most concerning to producers, The Gas Review says.
For the locations that use desulfurised gas from oil refineries, there are many cases where raw gas cannot be obtained to meet initial schedules because of demand for gasoline and changes in the amount of hydrogen used in refineries. Carbon dioxide producers said that supply quantities were particularly low this year with “a 20-30% reduction in production from past years.”
Longer scheduled maintenance periods are also a source of worry for carbon dioxide producers. Particularly at refineries that have been operating for several decades, more time is required for maintenance of aging facilities and there are cases of rushed unscheduled maintenance as well. What is more, the work-style reforms that started in Japan from April has forced reductions in working hours for maintenance workers, causing delays of several weeks over the scheduled maintenance period at some locations.
So when unexpected troubles occur under these conditions, carbon dioxide producers ended up running around just to procure enough materials to meet immediate needs, before they were able to store sufficient liquid stock for the peak demand season. Continuing on from last year, producers lived with a strong sense of urgency, saying, “Summer has started and we have essentially no stocks on hand”.
Long-distance shipping has become essential, increase distribution costs become burden
With carbon dioxide, production locations are limited by the locations of source materials, but that does not necessarily mean they will be close to the users. This necessitates shipping long distances and shipping between distribution centres. For example, this situation is clearly evident in data from the Kyushu region. Looking at data from the last fiscal year, when supply was particularly tight, only 20,000 tonnes of carbon dioxide was shipped from centres within the region to meet sales of 100,000 tonnes. Simple subtraction of shipping quantity from sales quantity shows that 80% of demand was supplied from other regions.
The Kyushu region has many major users of carbon dioxide, such as steelmakers and beverage producers, but it has only five locations where liquefied carbon dioxide is produced. In February last year, Nippon Ekitan stopped production of liquefied carbon dioxide at its Kurosaki Plant and since then, the entire amount has been procured from the Honshu locations of Ube Industries and its Mizushima plants. In the same way, Iwatani, who does not have a production centre in the region, stations more tanker trucks there than in other regions and trucks liquefied carbon dioxide from mainly Ube Industries to meet demand.
In this environment, the higher distribution costs have become a heavy burden on producers. On top of the very real shortage of labour in the distribution industry, the work-style reforms implemented this spring have resulted in shorter working hours for tanker truck drivers, making it difficult to deliver to multiple customers on one trip.
One person in the industry said, “We have done all we can as a shipper, such as increasing the sizes of storage tank at customer locations to reduce the number the number of deliveries, but in view of the work-style reforms, there is a trend to shy away from long-distance shipments. Even if we can find someone to accept the work, we have to agree to higher shipping prices.”
Another person in the industry said, “With the penalties for excessive overtime that started last year, workers are moving to places with better working conditions. Shippers face additional costs to keep on tanker truck drivers, and those expenses have to be added to product costs.”
Nippon Ekitan, Showa Denko Gas Products, Air Water Carbonic and Iwantai all gave higher distribution costs as a reason for the price increases this spring, and plan to ask users and sales outlets for their understanding.
Importing dry ice, which has served as a backup during peak demand seasons and when overlapping maintenance adds to the problem, reached about 24,000 tonnes in 2018, but it is thought that imports from South Korea, which previously accounted for the bulk of imports, will be cut in half in 2019. That is the result of the increased demand for beverages and low-temperature shipping within South Korea, as well as the increasing number of cases of using off-gas from oil refineries, the traditional source of carbon dioxide, in polycarbonate production processes.
With this background, dry ice producers are increasing the number of presses at their main production centres, trying to import from China, and taking other measures. There are still issues to be solved, such as the different block size of dry ice from China compared with the standard block size in Japan and the greater shipping distance from China compared with South Korea, and companies are carefully studying factors such as the balance between profit and processing/shipping costs.
Booming market for highly carbonated drinks sustains favourable demand for beverage market
While difficulties continue on the supply side, demand has remained solid. Sales of liquefied carbon dioxide in fiscal 2018 are down 0.5% from the previous year. Although about half of demand was for welding where a slump in the main users (shipbuilders) raised concerns, metropolitan redevelopment projects have created increasing demand for the steel frame industry. The beverage booms for highballs and strongly carbonated drinks have resulted in an increasing percentage of sales in this area. Otherwise, a rise in demand for cleaning and other semiconductor applications is expected, and for neutralisation, it seems that new applications other than the typical wastewater treatment have appeared.
Agricultural applications, which were thought to be a new area of leading applications, appear to have settled down. Many of the large users of carbon dioxide were tomato producers and many of them entered the market in the last few years, creating demand for carbon dioxide. However, it has led to lower market prices for tomatoes, so that some producers have stopped using carbon dioxide enrichment to cut costs.
Shipments of dry ice in fiscal 2018 were down slightly by 0.5% from the previous year. In part due to the difficulties in procuring dry ice last summer, the tendency increased among co-ops and home delivery companies to use less dry ice, but they ran into bottlenecks for the alternative cold storage agents in handling the initial investments for refrigeration facilities and recovery of agents after use. Currently dry ice remains on top.
The Gas Review, Issue no. 472