Intermediates: In Europe, solvents aim to maintain momentum

03 January 2011 00:00  [Source: ICB]

European producers aim to maintain momentum as they roll into the New Year

European solvent producers are hopeful for the year ahead, though most doubt they will see the kind of growth they enjoyed in 2010.

In the glycol ethers market, economic recovery and strong demand from key downstream sectors such as automotives pushed growth to around 20% last year, bringing volumes close to 2008 peaks. While 2011 may not equal that pace, sources told ICIS, the scene is set for further expansion.

"We won't see the big changes of 2009 to 2010, but low single-figure growth can be hoped for," a producer opined.

European suppliers in general said signs are good, especially with strong buying interest from Asia, where the market has been tight.

Healthy demand from Asia has also sparked activity in the European downstream automotive sector, they noted, with several car manufacturers planning minimal shutdowns over the Christmas holidays.

However, other factors complicate the picture. One domestic buyer cautioned: "We're expecting a full year, but we need to reign it in and not try and grow too quickly, or the market will get overheated and cause instability."

Some commentators, noting the present uncertainty of the upstream olefins markets, expressed concern for a repeat of the volatility seen last year, when butyl glycol numbers soared €160/tonne ($210/tonne) to €1,210/tonne FD (free delivered) NWE (Northwest Europe) on 10 December.

Reduced operating rates and robust demand had already begun tightening propylene, and some sources feared that January would bring four-digit prices.

Prices for certain glycol ethers and propylene glycol ethers will rise, players said, but by how much will depend on upstream movements.

"It could be plus €50/tonne. It could be €200/tonne. We simply don't know," a trader said.

Also, another cold snap would likely see upstream propylene oxide diverted into propylene glycol for use in the production of deicer, where margins are higher. If Europe suffers another winter such as the last, the result could be another shortage of propylene glycol ethers, worried one seller.

In the meantime, sellers said, order levels have been good. "2011 may not be the best year, but it will be a good year," ­remarked one producer.

Methyl ethyl ketone (MEK), isopropanol (IPA) and methyl isobutyl ketone (MIBK) prices will be dictated largely by upstream price movements, according to market sources. The demand picture is cloudy, they noted, and market sentiment is divided.

MEK, IPA and MIBK players linked to coatings applications predicted a flat market for the year. The majority of sources linked to other downstream markets projected consumption growth of 3-5%, linked to economic recovery. However, a minority of sources, pointing to austerity measures being implemented in several European countries, expected lower growth, without being specific.

The markets for both ethyl acetate (etac) and butyl acetate (butac) were largely balanced as 2011 approached, but sellers have targeted price increases, citing upstream cost pressures.

So far, etac targets had been quoted at plus €90/tonne for the first quarter. Butac targets, meanwhile, were heard at plus €50-100/tonne.

Most sources estimated growth for 2011 in low single digits, but some acetate players would not commit to a number, explaining that there were still too many uncertainties in the market.

"We are eager to get a good feeling for the start of next year," one supplier said, noting, however, that feedstocks looked like a "horror" for 2011.

"It is still so difficult to predict from one month to the next," one buyer said. Stocks are still low throughout the industry, the source added, and markets will react quickly to any hiccups.

With contributions from Mark Victory and Jane Massingham

By: Amandeep Parmar
+44 208 652 3214

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