FIBRES MONITOR: Mixed results as quarter ends

25 September 2006 00:00  [Source: ICB]

High feedstock values keep prices elevated, as buyers bemoan eroded margins. Tightness hits Europe's fibres markets, with sellers hoping that outages can stall downward sentiment

Dimethyl terephthalate (DMT) prices have been ­keeping up with ­soaring paraxylene (PX) values over the summer. The September contract settled at €966-1,016/tonne, up €64/tonne, while the August contract rose by €45/tonne. European producers are said to be running at 80-90% of capacity, and two NWE producers have undergone planned maintenance turnarounds in the past few weeks. The market received news that major German DMT producer Oxxynova is to be sold to a subsidiary of Arques, a German investment group, for €22m.

Acrylonitrile (ACN) remains tight, and the permanent closure early in September of Romanian producer, Arpechim's, 52,000 tonnes/year plant has exacerbated the situation. Demand over the summer has been healthy with a strong fibres market and a reasonably healthy acrylonitrile butadiene styrene (ABS) offtake. Feedstock ­propylene has been on the up, pushing third ­quarter ACN values up by €30/tonne to €1,610-1,645/tonne. Spot numbers have edged up to $1,640-1,670/tonne, and are expected to reach $1,700/tonne CIF NWE soon. Buyers say they cannot absorb these high numbers, which are eroding their margins un­acceptably, and some claim they may have to shut down production if numbers continue to rise. One major buyer in the fibres sector already claims to have reduced production to an average 50-60% of capacity.

Monoethylene glycol (MEG) has seen a fairly firm couple of months, and prices have been stable. September's contract price rose a moderate €12/tonne to €877/tonne FD NWE. However, the Asian market has ­succumbed to pressure with numbers plummeting. As Asia is generally the key driver of the European market, European buyers are gaining some confidence in their quest for decreases in next month's contract. ­However, INEOS Oxide has recently declared force majeure on ethylene oxide and derivatives, following an unplanned outage at its Lavera, France, cracker, and it is unclear what effect this development will have on the MEG market. In addition, there are a number of shutdowns due to hit the market from later this month Shell's Moerdijk unit in the Netherlands and BASF's Antwerp, ­Belgium, site are due for maintenance from mid-­September, and Dow/MEGlobal's Terneuzen unit, also in the Netherlands, is thought to be due a turnaround within a similar timeframe. These outages may help to stall the downward sentiment in Europe.

Caprolactam has been tight, and numbers moved up in June, July and August, because of this, along with the increases in the benzene contracts. However, caprolactam has recently reached a somewhat more balanced position, and with the sharp fall in benzene values of €134/tonne, buyers were keen to push for a hefty decrease in September. On average, decreases of €50/tonne have been agreed, and the September contract range stands at €1,761-1,861/tonne FD NWE. The August settlement saw an increase of €20/tonne in response to the €27/tonne hike of August Benzene, settling at €1,811-1,911/tonne. Demand remains decent and suppliers say that it is not always possible to fulfill all enquiries.

The cyclohexane contract delta settled at €140/tonne for the third quarter, although not all producers were happy with this number. There has been a hot debate about the ­current pricing mechanism, which is based on the benzene price, plus a ­quarterly ­negotiated premium. This has led to an increase in ­settlements made on a formula-related basis. Cyclohexane has been on the tight side since an outage at Total's plant in Antwerp, ­Belgium, on 6 July, which only came back up on 11 ­September. However, force majeure ­restrictions remain in place. Demand has been ­reasonable downstream with adipic acid and caprolactam running well. Some suppliers say that there is little spot material available.

PTA ON DOWNWARD SPIRAL AFTER BULLISH SUMMER

Purified terephthalic acid (PTA) has remained bullish over the summer, supported by strong polyester demand in Europe and a booming Asian market. August prices rose by €50-52/tonne, settling at €905-943/tonne FD NWE, following a rise of €50-60/tonne in July. Market observers spoke of record volumes of PTA being sold during the height of the polyethylene terephthalate (PET) season. However, as the peak PET demand season draws to a close, PTA is now on a downward spiral, pushed by tumbling Asian values, along with weakening paraxylene (PX).

A number of producers still hope to push for a margin increase of around €10/tonne to add to a succession of increments achieved in the past few months. Buyers on the other hand, point to the softening of the Asian market, as well as the imminent weakening of European PET demand going into autumn. Turkish producer Petkim's 70,000 tonnes/year PTA plant has recently come back on line after closing on 31 July for economic reasons.

FALLING CRUDE AND WEAKER FEEDSTOCKS HIT SENTIMENT

Acrylonitrile (ACN) spot numbers in Asia were largely firm from July to September amid tight supplies. Prices were buoyed throughout the quarter by high crude numbers, with ACN climbing as high as $1,650/tonne (€1,300) CFR Asia in September, from $1,510/tonne in early July.

By mid-September, a fall in crude and feedstock propylene values, as well as poor demand from the acrylic fibres industry, contributed to weaker market sentiment. Tight supply caused by a string of Asian production cuts kept spot availability snug. Prices mostly hovered at $1,600-$1,650/tonne, unchanged from a week earlier. In China, buyers were largely reluctant to do business above $1,600/tonne, a level that is seen by acrylic fibre makers as ­crucial for breaking even.

Asahi Kasei Chemicals, a major acrylonitrile producer, has rolled over its October nomination at $1,710/tonne CFR Asia.

Spot monoethylene glycol (MEG) prices rose by around $53/tonne from early July to late August, boosted by soaring crude prices and high ethylene costs upstream.

At the beginning of the third quarter, MEG averaged at $911/tonne CFR China, climbing steadily to highs of $970/tonne in mid-August. Prices also benefitted from strong demand from polyester producers in China - the world's ­largest consumer of MEG, accounting for 70% of global demand.

However, MEG prices started slipping from the third week of August, dragged by low downstream prices and falling ethylene. Market sentiment was uncertain.

In September, polyester producers in China, already hurt by overcapacity and competition from natural cotton producers, cut operating rates to limit losses. In the third week of September, MEG prices had fallen to $845-855/tonne CFR China.

At the end of the third quarter, Sinopec Yangzi Petrochemical cut production at its 260,000 tonnes/year plant at Nanjing, China, due to a 20-day shutdown of its adjoining cracker at around the same time. Operating rates were expected to be around 80-90% of nameplate capacity.

Purified terephthalic acid (PTA) prices ­followed the same trend, posting strong gains from July through early September amid high crude and feedstock paraxylene costs. Spot prices in Asia rose from $968/tonne CFR China in early July to as high as $1,142/tonne CFR China at the start of September, fuelled by firm demand from polyester producers, many of whom were operating at 70-100% capacity.

By mid-September, however, PTA slumped by $94-97/tonne from a week earlier to $999-1,009/tonne CFR China. Sentiment was weaker because of falling crude and aromatic values. By the third week of September, PTA numbers were assessed in a $1,005-1,015/tonne CFR China range.

In the Chinese domestic market, spot prices are quoted at 10,000-10,050 yuan (CNY)/tonne ex-warehouse, having dropped a hefty CNY550/tonne on the previous week.

Downstream, several polyester makers were reducing or had already reduced operating rates to around 70%, in order to cut losses, limit feedstock procurement and salvage profits which had been achieved between May and August.

Spot caprolactam prices rose steadily from July through August on limited supplies and ­soaring benzene costs. Prices surged at around $150/tonne over the period, reaching $2,200/tonne CFR China. Prices started slipping around late August, in line with declining crude values. Sentiment was largely bearish in September, with many buyers sidelined.

In mid-September, offers were heard at $2,175-2,200/tonne CFR China, but bids were capped at $2,150/tonne CFR China. A 500-tonne deal for an east European cargo at $2,150 CIF China, was heard done.

Sellers were optimistic that tight supply in the wake of the labour strike at Korea's Capro Corporation, which is unlikely to be resolved before the end of September, will keep caprolactam pricing largely firm despite the faltering benzene values.

Meanwhile, Nanjing Chemical, a subsidiary of Chinese petrochemical major Sinopec, has started trial runs at its caprolactam project.

The 60,000 tonnes/year unit at ­Nanjing, Jiangsu province, was said to be operating smoothly, with commercial production expected to start before the end of the year.


WEST EUROPEAN FIBRE INTERMEDIATES CONTRACT PRICES, €/TONNE

Q4 2005 Q1 2006 Q2 Q3
DMT 866-896 Oct 824-854 Mar 820-870 (Jun) 966-1,016 (Sept)
PTA 1,091-1,121 Oct 1,049-1,079 Feb 850-900 (Jun) revised 905-943 (Aug)
MEG 875 Nov 830 Mar 777 (Jun) 877 (Sept)
ACN 1,425-1,475 1,405-1,460 1,445-1,500 1,610-1,645
Cyclohexane 703-712 Nov 807 Mar 955 (Jun) 883 (Sept)
Caprolactam 1,500-1,650 Nov 1,670-1,770 Mar 1,770-1,870 (Jun) 1,761-1,861 (Sept)NOTES: * revised figure + initial contract settlement
ASIAN FIBRE INTERMEDIATES CONTRACT PRICES, $/TONNE
Q4 2005 Q1 2006 Q2 Q3
Acrylonitrile 1,372-1,442 1,330-1,360 1,430-1,460 -
Caprolactam 1,688-1,754 1,910-1,960 1,975-1,990 (May) 2,120-2,140 (Aug)
MEG 784-795 785-795 910 (July) 990-1,020 (Oct)
PTA 784-798 775-780 880 (Jun) 1,050 (Aug)
UPGRADE FOR ACN UNIT

Tongsuh Petrochemical, South Korea's ­largest acrylonitrile (ACN) producer, will shut its No 2 and No 3 lines for a scheduled maintenance turnaround on 10 October.

The company produces 270,000 tonnes/year of ACN from the two lines, which are due to be shut for a month.

During the turnaround, Tongsuh will convert the smaller 70,000 tonnes/year No 2 line to use propane feedstock instead of propylene, which is based on its own proprietary technology.

The use of this new technology will enable Tongsuh to lower its operating costs, given recent high propylene prices.





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