30 September 2010 18:08 [Source: ICIS news]
LONDON (ICIS)--Europe’s diethylene glycol (DEG) market is likely to remain firm in 2011 as product tightens, but the market could avoid dramatic price moves and stick to contractual agreements, sources said on Thursday.
“I don’t expect a big change next year in terms of availability,” said a customer.
Consolidation has resulted in less DEG being produced in Europe. In addition, advances in production technology have resulted in DEG no longer being produced as a byproduct of monoethylene glycol (MEG), so new capacities will not include DEG.
That will force the European market, which already imports around 70% of its DEG, to rely more on material from outside of Europe, sources agreed.
“Everyone is already relying on importers. If these are drying up or repositioning themselves, [supply in 2011] would be difficult,” said a reseller.
Positive signs in the economies of Asia have already led to more DEG shifting away from Europe, leaving other traders and producers to deal with the deficit.
The US has been a major supplier of DEG to Europe in 2010. However, with consolidation there, Europe's supplies from the US have started to dry up, players said.
This has not proved to be a problem thus far, according to another customer, who said: “Existing suppliers have said yes to additional supply [in 2011].”
While most buyers anticipated little to no change in demand for DEG in Europe, the polyester polyols sector was growing.
This year has already proved relatively healthy. One source estimated demand to have grown from 2009 by 6-7% to around 300,000 tonnes, with polyester polyols as the main contributor to the growth.
“We are forecasting an increase and continued growth in the construction and automotive areas [in 2011],” said a DEG consumer.
A factor that could potentially destroy any hopes of improved demand would be a double-dip recession, which could bring the housing market to its knees, players agreed.
The option of substituting DEG for another product was not open to many DEG users, although a few said that glycerine could act as a substitute in rare cases.
“We considered changing applications, but we can’t. So we are stuck with what we have got,” said a DEG customer.
Other sources agreed that it was too late to make application changes now in time for next year.
“[DEG] will definitely be tight in 2011…we don’t see anyone bringing in more product,” said a trader.
There were lessons learned from 2009, when extreme tightness caused DEG spot prices to spike in a matter of weeks. Industry players said this prompted customers to move away from the spot market and to commit to contract agreements.
The first half of 2010 saw DEG availability dry up. “Most could get spot this year. It will be more difficult to get material on the spot market [next year],” said one source.
One source warned DEG players not to blindly go in the direction of everyone else.
Because of new capacities, MEG was expected to be long by the second half of 2010 but players put contingency plans in place. This, coupled with fewer imports making their way to Europe, have created tightness and high spot prices, which have surprised many.
“[DEG] might be bullish but it is not going to go wild,” said a trader, echoing comments from others.
ICIS assessed spot truck prices between €990-1,055/tonne ($1,356-1,445/tonne) FD (free delivered) NWE (northwest Europe).
($1 = €0.73)
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