12 February 2010 17:38 [Source: ICIS news]
By Mike Nash
LONDON (ICIS news)--Fears that global acrylonitrile (ACN) prices have risen too far, too fast and were headed for a major downward correction following the Chinese Lunar New Year holiday have dominated market discussions, sources said on Friday.
However, following a succession of production outages, the rate of increase rose dramatically in the fourth quarter of 2009, the most significant of which was INEOS Nitriles’ declaration of force majeure on ACN production at its 300,000 tonne/year facility at
The announcement of force majeure on ACN, which is still in force, was in turn prompted by the declaration of force majeure on propylene at the
This came at a time when the European ACN market for was already tight, with production issues earlier reported at INEOS Nitriles’ other ACN plant at Seal Sands,
Indeed, of Europe’s estimated 1.26m tonnes/year of ACN capacity, over 150,000 tonnes/year of capacity in Bulgaria and Spain had not been running for several months due to raw material and uneconomical production issues.
The shutdown at INEOS’s
The situation was exacerbated by strong demand in Asia pulling in product from the
This “perfect storm” resulted in spot prices rising in
However, there was a sense in the market this week that prices may have finally reached their peak, and that levels above $2,000/tonne CIF WE were unsustainable.
“Fibre producers will struggle to make a profit at current production economics and current fibre prices,” said one seasoned trader.
Another trader said: “[ACN] prices have jumped too far, too fast.”
Even producers acknowledged that, given current fibre prices of around €1.80-1.90/kg, the margin for fibre producers was negligible, given current ACN prices.
The catalyst for these comments was a report this week that Brazilian producer Acrinor had sold a cargo of ACN at $2,200/tonne FOB (free on board) to a trader.
Many traders doubted whether this business had even taken place, with one saying the price was “a crazy number” and that it seriously doubted the wisdom of any trader that had taken a position on the cargo without selling it.
However, there were reports of $2,300-2,400/tonne CFR (cost and freight) in
One trader speculated that it was in fact Russian material that had been sold to
This price theoretically implied a substantial jump in European CIF prices based on current FOB levels out of the major supply routes, but many sources described European prices at $2,300/tonne CIF WE as unrealistic and impossible to achieve.
This led to a hiatus in the European market, with buyers reluctant to take positions on high-priced product for March shipment for fear of a possible market correction after the Chinese Lunar New Year. As a result, some buyers were adopting a wait-and-see attitude.
All sources said that it would be difficult economically for fibre producers to pay much above $2,000/tonne CIF WE without going into negative returns. Some speculated that fibre producers would cut back on production rather than pay such high prices.
Sources described product as undeniably tight. One Mediterranean fibre producer said that it was running on a “hand-to-mouth” basis, and that any further delay to shipments from
This was not viewed as an isolated report. Earlier, another fibre producer said it had reduced capacity utilisation to 50% due to a lack of product.
Opinion among sources was sharply divided as to how the market in March and April would develop.
On the one hand, some believed that the market had peaked, particularly in
On the other hand, other sources said that the Chinese Lunar New Year slowdown was a smokescreen, as it had been anticipated and there would still be a global shortage of ACN.
Still other sources pointed to a raft of ACN shutdowns scheduled in
Moreover, sources said that there had been talk of the market overheating for the last three months, yet ACN prices had continued to rise.
In Europe, producers believed demand was being constrained by a lack of supply; and when INEOS’s ACN plant at
For many the key issue, in addition to how Chinese demand shaped up after the Lunar New Year holiday, was the prospects for feedstock costs going forward.
Producers were facing firm ammonia and propylene values that equated to raw material costs totalling $1,500-1,600/tonne.
With processing costs factored in, margins were thin, given current prices ex-plant that were equivalent to around $1,900/tonne, sources said.
($1 = €0.73)
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