FocusEurope oxo producers face uphill battle to improve margins

27 March 2009 16:20  [Source: ICIS news]

By Carl Roache

LONDON (ICIS news)--European oxo-alcohol and plasticiser producers face a difficult challenge as they attempt to improve their margins in April, market sources said on Friday.

Their attempts to pass on upstream price increases to spot buyers in February and March largely failed, as they were met with determined resistance.

Uncertain demand will continue to support the buyers’ stance in April, leaving producers facing the unenviable task of attempting to improve their bottom line in a testing market.

“They can increase the prices but they will not sell any molecules,” said one n-butanol (NBA) buyer.

Upstream, the propylene monthly contract price for April settled at a rollover of €497/tonne ($672/tonne) FD (free delivered) NWE (northwest Europe).

Following this, oxo-alcohol and plasticiser producers launched their own targets for freely negotiated spot business in April, with several aiming for increases to recover lost margins.

Contracts tied to propylene will obviously remain unchanged in April, but it is in the freely negotiated spot arena where margins can be eroded or improved.

One butanol seller was targeting a €30/tonne price increase in April.

“My motivation is we are not making enough money. I assume everybody in the industry is feeling the same pressure and therefore, we call it a delayed cost pressure price increase,” said the seller.

“It did not go up across the board in March but this doesn’t remove the need to get this price increase. If we do not keep trying, people will not offer me a better price, I need to take a more aggressive stance. It is passing through the cost increase we have already swallowed," the seller added.

Certain plasticiser producers were also looking to recover margins, with one dioctyl phthalate (DOP) supplier announcing a plus-€50/tonne target.

“The April target is to slightly increase prices but I am not sure it will be possible,” said a di-isononyl phthalate (DINP) producer.

Buyers rejected any possibility of accepting price hikes in April.

“If they try to increase the price level I am sure no one will buy from them. Plus we have imported product around as well and there is lots of availability,” said one NBA buyer.

“Demand is still falling so prices are not increasing. There has been no rebound in demand,” added the buyer, who reported purchasing 30-40% less NBA in the first quarter of 2009 compared with the same period in 2008.

“It is not reasonable to expect a decrease but a price increase is unlikely as demand is still poor and there are some suppliers looking to sell volumes, so there is always an opportunity to get volumes at a reasonable price,” said a DOP buyer.

Certain buyers questioned the producers’ claims of squeezed margins, arguing that oxo-alcohol and plasticiser prices were still much higher than the price of propylene despite the recent declines.

Regardless of this, there is no doubt February and March were difficult months for sellers. The propylene contract price rose for both months, but in the vast majority of cases, producers were unable to pass on these increases to their customers.

Certain producers reported successfully implementing increases in March, but these were considered sporadic at best as overall spot prices did not show a rise.

In the period between the February propylene settlement and the April settlement, propylene contract prices increased by a total of €67/tonne.

However, during the same period, NBA and isobutanol (IBA) spot prices fell €30/tonne, 2-ethylhexanol (2-EH) prices fell €10/tonne, DOP remained stable and DINP fell €20-30/tonne, according to global chemical market intelligence service ICIS pricing.

The inability of producers to pass on the upstream rises meant an erosion of their margins.

The uneven supply-demand balance proved decisive in this price development.

Construction is an important downstream sector for oxo-alcohols and plasticisers and this remains sluggish. Another end sector, coatings, is also much weaker than it was a year ago.

Bar a few exceptions, oxo-alcohol and plasticiser production remains reduced as producers attempt to align output to demand.

Undercutting by fellow suppliers was also an impediment to passing on the upstream increases.

“It was impossible due to competitor prices,” said a DINP supplier. “We tried to increase but due to the markets conditions it was not possible, despite rising raw material prices.”

The lack of consistency among sellers was a key factor as only some producers pushed for increases in February and March, while others accepted price stability from the onset. This allowed buyers to play sellers off against each other.

Producers conceded that improving margins in April would be very challenging.

“I have no illusions about being able to make great steps ahead if other suppliers do not make similar steps,” said a butanol producer attempting a price increase in April.

Once again not all sellers were targeting blanket increases in April. One oxo-alcohol and plasticiser producer said it would only target increases on those accounts that did not accept them last month.

European oxo-alcohol and plasticiser producers include Oxea, Perstorp and BASF.

($1 = €0.74)

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By: Carl Roache
+44 20 8652 3214

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