OUTLOOK '08: Feedstock driving Europe solvents

28 December 2007 16:27  [Source: ICIS news]

By Charlie Shaw

 

LONDON (ICIS news)--Opinions were mixed regarding the short-term prospects for ethyl acetate. Some felt it would see modest growth, while others said fundamentals in the second half of 2008 would be less favourable than in 2007.

 

One producer said the slowing auto industry in Germany would play a part in this.

 

Another view was that prices will be driven higher by elevated oil and gas numbers. One distributor said fully integrated producers would have a clear advantage over those having to buy their raw materials.

 

On the other hand, more acetic acid capacity could come on stream later in the year which could start to ease ethyl acetate prices.

 

Asian imports could start to arrive in larger quantities should the euro exchange rate remain favourable to Asian exporters.

 

However, healthy demand in that part of the world could see sellers there solely interested in the domestic market.

 

Butyl acetate is likely to remain tight in 2008, with the availability of feedstock butanol constrained by two major maintenance shutdowns.

 

This could result in an overall reduction of 10% of average annual output, according to some.

 

One large buyer thought otherwise, predicting that prices would be lower by the end of the year and forecasting a reduction in the cost of methanol - which is used for acetic acid production.

 

The buyer thought that new capacity for production of butanol in the Asia-Pacific region would help to ease butyl acetate prices downwards.

 

Another factor cited as likely to sustain high prices was a protracted absence of imports from Asia. According to this view, a relatively small unplanned interruption to output could significantly upset market fundamentals.

 

On the other hand, one major producer said a weaker downstream economic environment could give some relief to the balance of supply and demand.

 

Increasing raw material costs and strong market competition continued to be the main focus as European producers of iso-propanol (IPA), methyl ethyl ketone (MEK) and methyl iso-butyl ketone (MIBK) looked ahead to 2008.

 

Although tight supply has pushed spot prices for IPA and MEK up during times of severe production outages in 2007, prices bounced back below manufacturer targets as soon as market balance was restored, sellers and buyers noted.

 

Sustained strong naphtha pricing was an ongoing challenge to downstream MEK producers, and the €57/tonne ($83/tonne) first-quarter propylene increase will apply further upward pricing pressure on IPA and MIBK, producers said.

 

Buyers, however, said the market was well supplied at present and manufacturers would struggle to raise the level.

 

For MIBK, a structural oversupply situation in the European market meant prices were some €200/tonne below what producers described as reasonable for profit margins.

 

Domestic manufacturers said imported material was the main driver for the cost pressure and no easing of competition was to be expected in 2008, according to market participants.

 

Propylene oxide-based glycol ether producers will be looking to implement hikes in the region of €100/tonne for methoxy propanol (PM) and €120/tonne for methoxy propanol acetate (PMA) from next week, based chiefly on first-quarter propylene and methanol increases of €57/tonne and €110/tonne respectively.

 

Sellers said they were never able to pass through the added raw material costs they incurred moving into the fourth quarter this year, which was why they would be looking to make up some of this extra ground early in 2008.

 

One producer said it would aim to secure a sizable increase next week, followed by a series of step increases during the first quarter.

 

The market for ethylene glycol ethers saw sustained tightness in 2007 on account of a series of plant outages in Europe. Strong Asian demand, itself stemming from a major outage at the region’s key Malaysian plant, played the part of soaking up much European spot material in the fourth quarter.

 

This tightness was always forecast to remain in the first quarter of 2008, with European sellers still saying they would be unable to meet demand for some time.

 

Prices are set to rise further with immediate effect on account of greater-than-expected first-quarter ethylene and propylene hikes, which will add a substantial cost to producers’ raw material expenditures.

 

A maintenance outage announced by the market’s largest producer in February has given distributors and buyers added reason to suppose that producers will try to push prices through the €1,500/tonne FD NWE mark later in the quarter.

 

($1 = €0.69)

 

Peter Gerrard and Sofia Lind contributed to this article    


By: Charles Shaw
+44 20 8652 3214



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