US acrylates buyers resist hikes but concede pressures

06 June 2009 00:07  [Source: ICIS news]

By Larry Terry

HOUSTON (ICIS news)--US acrylic acid and acrylate esters buyers largely agreed that prices could increase by a limited amount for June because of rising feedstock costs, although one buyer insisted on Friday that price initiatives would end in total failure.

If producers were successful, mid-range price increases of 5 cents/lb would push butyl acrylate (butyl-A) to 60-64 cents/lb from its May range of 55-59 cents/lb, and glacial acrylic acid (GAA) to 62-66 cents/lb from its monthly range of 57-61 cents/lb.

Producers might be able to achieve a 3 cent/lb ($66/tonne, €47/tonne) increase as a result of raw materials pressure, buyers said, but higher proposals would fail.

Two weeks ago, buyers were adamant that they would not accept any price increases amid weak demand.

A producer said it would risk volume to restore margins.

"Our customers don't seem to care about our margins and they are still pushing back because they can,” the producer said. “Based on the supply-demand picture, they have the ammunition," the seller conceded.

But with late fourth-quarter 2008 and early 2009 volumes described as "disastrous" and raw materials prices likely to rise, sellers said it was time to increase margins.

"We're pretty much at the point of pushing for increases even at the risk of losing volume," a seller said. "I can't predict what will happen but if we have to give up some volume, then so be it," he added.

"Cost is not really the issue right now," a buyer said. "The issue is the need to bring up margins to reinvestment levels. I think an increase is going to happen ... but the sad truth is that demand is still down."

A buyer of glacial acrylic acid (GAA), who recently expressed doubt that prices would move upward during the remainder of the second quarter due to soft demand, has since softened his view.

"Given the large price increase expected for [June feedstock] propylene, I don't see how buyers can fend off an increase,” the GAA buyer said. “Buyers of acrylates need to act responsibly to ensure that we do not force sellers into a situation similar to 2003 where there are losses for an extended period."

Despite price peaks at that time due largely to tight supply of GAA and 2-ethyl hexyl acrylate, feedstock chemical-grade propylene (CGP) costs rose sharply, severely squeezing producers' margins.

One large-volume buyer said it would accept larger increases based on raw materials pricing, and said buyers, in turn, would have to raise prices to keep from selling to their customers at zero margins or at a loss.

However, the market environment called for circumspection on the part of buyers and sellers, some said.

"Reasonable price moves for GAA proposed by sellers and accepted by buyers will hopefully give us a more stable market," a buyer said. "And buyers of GAA and other acrylates have to effectively communicate to their customers what is going on with propylene and what likely will have to happen with acrylates."

Another buyer insisted the price initiatives would meet with absolute failure.

"The 3-8 cents/lb ($66-176/tonne, €47-125/tonne) is absolutely ridiculous and will not fly," he said. "Who can afford this in the current marketplace?"

Producers cited low margins and sharp increase nominations for June CGP and oxo-alcohols n-butanol (NBA) and 2-ethylhexanol (2-EH) in making their price proposals.

CGP for May was at 30 cents/lb. May NBA was holding steady at 85-90 cents/lb, and 2-EH stood at 82-87 cents/lb for May.

June CGP nominations range from 10-13 cents/lb based on a jump in refinery-grade propylene (RGP) values in May due to tight supply and higher energy prices. May CGP contracts rose by 2.5 cents/lb.

Producers of the oxo-alcohol feedstocks nominated price hikes of  5 cents/lb for 1 June. A producer nominated an additional NBA increase this week of 7 cents/lb for 1 July.

Buyers said they were not surprised by the price push, but were surprised by the amount of the proposals.

The buyer also questioned the sharply higher announcements for June since May CGP rose by a relatively small amount versus June CGP nominations. June feedstock prices should not influence June acrylates pricing, the buyer said.

Crude oil, the source of propylene feedstock naphtha, also played a big role in the feedstock price movements. CGP values were rising amid tighter supply as the profit from routing propylene into high-demand gasoline rather than chemical production portended tighter CGP supply in June and July.

The NYMEX crude futures contract for July settled on Thursday at $68.81/bbl, a 42% increase from 1 April, when the front-month contract settled at $48.39/bbl.

US producers of acrylic acid and acrylate esters include BASF, Dow Chemical, American Acryl and UCAR Emulsion Systems & Monomers.

($1 = €0.71)

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By: Larry Terry
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