OUTLOOK ’10: Solvents likely flat or weaker until 2010 second half

29 December 2009 18:15  [Source: ICIS news]

HOUSTON (ICIS news)--US solvents buyers and sellers sounded grim about first-half 2010 prospects but said some improvement could surface in the second half of the year when government stimulus efforts might begin to have an impact.

Though hardly optimistic, that outlook differs sharply from dire predictions for 2009, during which a lengthy recession depressed demand for paints and coatings markets including housing and automobiles.

Isopropanol (IPA), in which demand fell by 15-20% by some estimates, and methyl ethyl ketone (MEK), which fared even worse with sales down by 30-40%, were not expected to see much progress toward normal demand levels in 2010 until at least the middle of the first quarter, a producer said.

“Things will begin slowly as people return to the market after the holidays,” the seller said. “As we talk with customers in mid-to-late January, we should be able to tell more about demand in 2010.”

However, the seller said, “We’re still hoping to see an uptick as the spring coatings season gets under way like we did last year.”

But US companies with a global presence, including Celanese, see the new year differently.

Celanese chairman David Weidman said in a recent conference call that the company's focus will continue to be on China, which Weidman acknowledged is not suffering from a stagnant economy as are the US and Europe.

"Right now in China things are pretty robust," Weidman said. "There's an upward tick in exports, industrial or infrastructure spending is elevated, and from where we sit, the Chinese have all the cash in the world. They have potential consumers sitting out there."

Weidman said he expected acetic acid to continue selling in the $350-400/tonne (€245-280/tonne) range in China for the near future.

"That train will continue to run at a pretty good head of speed," Weidman said of Celanese's China operations. "There may be some bumps along the road but I don't see any potential derailers."

As for Celanese's base in the US, Weidman said he already has noticed signs of improvement.

While Celanese is operating its plants in North America and Europe probably 15% below the levels at the high-water mark of 2008, Weidman said the company's actyls order build had strengthened in North America and Europe during late November and early December.

"It certainly looks a lot better than where we were last year," Weidman said.

With the decline in architectural coatings stemming from the US housing slump expected to continue well into the coming year, however, some buyers were less hopeful.

“Things might improve in the latter half of 2010,” a distributor said. “The Obama administration’s programmes are not really geared toward small-business improvements in the near term. Business is resilient, but it takes time to recover.”

“We made budget cuts to adjust to demand fall-off in 2009,” the buyer said, “and we expect a mostly flat performance during the first half of 2010.

“We’re just waiting for the economy to resurge, so we can take an optimistic view,” the buyer said. “From my perspective, the general market is not responsive. They are too cautious about the administration’s measures right now. There is too much uncertainty.”

As for primary feedstock propylene, “no one really knows what it will do on 1 January,” one methyl ethyl ketone (MIBK) producer said, but propylene is likely to be tight in 2010.” Propylene rose by 4.5 cents/lb for December, exerting strong pressure on IPA, for example, and prompting producers to propose hikes of 5 cents/lb for 1 January.

One producer assessed North American MIBK demand healthy and balanced with supply, but expressed some concern about additional capacity due on stream at Sasol’s Sasolburg plant expansion in South Africa.

The expansion, which will double Sasol’s MIBK capacity to 60,000 tonnes/year, is set to start up in March, a company source said, but how soon the plant reaches full operating capacity depends on several factors, including economic conditions, the company said.

MEK will continue to face downward pressure as 2010 gets underway, a distributor said, mostly due to less-expensive imports and low buying interest. Sellers may also be trying to spur demand, the distributor said, which could push prices downward.

US IPA producers including Shell, Dow Chemical, Exxon, LyondellBasell and Eastman.

US MEK producers include Exxon and Shell, and US MIBK producers including Dow Chemical, Eastman and Celanese.

Major US butac producers include Dow Chemical, Eastman and Oxea Group.  

Major US etac producers include Celanese, Eastman and Solutia, whose material is marketed by BP.

($1 = €0.70)

Additonal reporting by Lane Kelley

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By: Larry Terry
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