Producers warn of danger of overcapacity

04 June 2001 00:00  [Source: ICB]

'The danger for Asia in the future will not come from a lack of self-sufficiency in acrylonitrile production but from being caught up in a situation of global overcapacity with high Asian feedstock costs', Tecnon Orbichem's Charles Fryer said during a recent event organised by the consultancy in Thailand.

Existing and potential new producers will have to exercise more self-discipline in the future, in order to prevent overcapacity and world supply-demand imbalances as occurred in the early 1980s and in the early 1990s, Fryer said, and the commissioning of two major new plants by Solutia and Formosa in late 2000 has focused minds to avoid market dislocation.

Turning to the demand side, Tecnon Orbichem sees world consumption of acrylonitrile at 6.1m tonne by 2010, which represents an average growth rate of 2.7% between 2000 and 2001, based on a return to the 'Asian Tiger' economic scenario of 1997. This forecast shows unexcitingly low growth rates, Fryer says, which does not support the argument for Asian self-sufficiency.

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On pricing, Fryer says some 'ambitious' Asian companies are calling for an Asian market price for acrylonitrile. While the market price for ACN is currently set on the basis of exports from the US with some allowance for freight, Asian players are seeking to reduce their dependence on 'wildly' fluctuating US export prices with a more stable benchmark modelled on the US domestic price.

Two main arguments are being used to justify a new Asian acrylonitrile reference price, Fryer says, and these are based on the growth in Asian demand and higher production costs for propylene and ammonia feedstock. The most likely sources for a new price may be Japan or China. While in Japan's case, the domestic contract price for ACN is agreed in arrears with a delay sometimes of several trading quarters, Asian players expect the emergence of a 'China import price' to provide a benchmark number for Asia. However, Fryer says, an Asian benchmark price is unlikely to emerge because of the globalisation of ACN purchasers and producers, with BP investing in Asia and Asahi acquiring a stake in Solutia's new plant in the US.

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