FocusChina, biofuels squeeze Europe DEA

05 June 2008 17:34  [Source: ICIS news]

By Shelley Kerr

LONDON (ICIS news)--Huge global demand for diethanolamine (DEA) since the fourth quarter of 2007 has led to extreme tightness in the European market, which has seen both spot and contract pricing power to record high level, according to market participants.

The rise in prices has been so steep that current high end levels (€2,150/tonne) are almost double those reached at this time last year.

Energy and feedstock prices have certainly played their part in pushing the market higher.

Key feedstocks ethylene and ammonia have risen throughout this year while the costs of production have also surged in line with energy complex values.

But the major factor behind the higher market values has been a serious global imbalance in supply and demand.

Driving this huge surge in demand has been massive global growth in the manufacture of the herbicide glyphosate. 

Key factors have been increasing demand for crops to produce biodiesel and especially a booming glyphosate market in China.

Some European buyers believe that some of the volumes being diverted out of Europe into the Chinese market are part of a pre-marketing strategy on the part of producers set to build capacity in the region.

One trader active in the glyphosate market in China explained the huge surge in prices in relation to the growth of glyphosate production in China.

“Chinese glyphosate prices increased from $3.50/kg to $14.00/kg in the last year. This has allowed the Chinese to pay top dollar for diethanolamine,” he said.

While contract buyers in Europe have been able to cover their requirements for the most part, those wishing to secure volumes have been forced to swallow increases of up to €250/tonne each time they have negotiated their quarterly business.

Market sources were hopeful that demand for European material from China would begin to wane with the reversal of anti dumping duties into the country on Taiwanese and Japanese product.

These hopes have yet to be realised, however, and buyers looking to secure material off contract have admitted that finding product is nigh on impossible, and when volumes are available consumers need to match the stellar levels being paid in the Chinese market in order to keep volume in Europe.

Markets for monoethanolamine (MEA) and triethanolamine (TEA) have also tightened as DEA production has been favoured. Prices have been pushed higher but not to anything like the same extent as for DEA. 

Average MEA prices in Europe have increased from around €1,250/tonne one year ago to around €1,580/tonne in May 2008. In the same period, TEA prices rose from around €1,400/tonne to €1,580/tonne.

Most sources in the market have agreed that, short term, the market looks set to remain unbalanced, which is likely to keep prices supported. Buyers remain concerned, however, that the next round of contract negotiations is likely to result in more significant increases.

In the mid to long term, however, the supply situation is likely to improve with a raft on new capacity set to enter the market in the coming years.

Companies which have announced expansion plans or an intention to enter the market in the next two years include BASF, Dow, INEOS, Oxiteno, Reliance and SABIC through its affiliate Saudi Kayan. New production is slated to come online in all major regions. 

Sources believe that this new capacity should help to rebalance the market and prompt prices to retreat again.

“With all the new capacity coming on-stream, by 2010 prices could come down again, but for the next two years the market could remain tight and prices high,” commented one seller.

($1 = €0.65)

The full story will appear in ICIS Chemical Business 16 June special “Agricultural Chemicals” issue.

By: Shelley Kerr
+44 20 8652 3214

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