OUTLOOK '11: Europe PA market expects flat 2011

30 December 2010 13:04  [Source: ICIS news]

By Mark Victory

LONDON (ICIS)--European phthalic anhydride (PA) players were expecting 2011 demand growth to be flat compared with 2010.

“All customers say that 2011 [demand] will be at 2010 levels,” a producer said.

Nevertheless, some players were forecasting that consumption would grow by 5-10% in certain industries, such as downstream resins.

Growth predictions of up to 10% were made on the assumption of continued economic recovery in the major downstream construction market.

However, growth rates remained difficult to predict as there was continued uncertainty over demand in the plasticisers markets, as fears over the toxicity of dioctyl phthalate (DOP) - a major end-use market for PA - could reduce demand.

“It’s in polyester resins where you really hear [10%] growth rates everywhere. But the big question is what will happen with plasticisers. It’s very difficult to predict... some producers linked to DOP are saying they might have less demand on toxicity concerns,” a trader said.

The majority of players continued to focus on the need for consolidation in 2011, because market oversupply had resulted in poor margins in 2009 and 2010.

“We need consolidation. We’ve been waiting for this throughout 2010,” a producer said.

Compared with pre-recession levels in 2008, PA margins had declined by almost €300/tonne as feedstock orthoxylene (OX) cost increases had not been passed downstream because of weak consumption.

“The big question is, will we end 2011 with the same number of producers as we went in with? Producers are really losing money... it will come down to financial strength,” a trader said.

When and where consolidation would come from remained unknown. Several players felt that consolidation would come from non-integrated players, which were less able to swallow feedstock price hikes. Players also pointed out that barring any unexpected recovery in 2011, it would be the third year of weak margins in a row.

“Consolidation can happen at any time. It wouldn’t be a surprise, but it’s hard to predict when and where. People are still struggling to survive. Going in to the third year [of poor margins], it will be really tough,” a producer said.

Demand remained low at the end of 2010 - partly because of destocking ahead of the year-end in order to lower gearing ratios. As a result, OX contract price hikes of €80/tonne across November and December were not realised in the PA spot market. Consequently, producers were firmly targeting rises of at least €80/tonne in January in order to recoup lost margins.

Another concern for the market in 2011 was the availability of OX, which could be tight in 2011, sources said. This was partly attributed to strategic decisions upstream, with questions over whether refineries would continue to see value in producing OX.

A producer said: “The availability of raw materials [in 2011] is a big question mark. Are refineries willing to produce OX?”

This was also partly attributed to OX producers wanting to increase their captive use of the material.

“There are worries about OX availability. They say OX producers want to keep product,” a trader said.

($1 = €0.76)

For more on PA, DOP and OX visit ICIS chemical intelligence
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By: Mark Victory
+44 208 652 3214

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