25 March 2011 10:03 [Source: ICB]
Buyers hoping for relief have been disappointed by the persistent tightness of supply in both Europe and the US
Last year, unplanned outages and price hikes sent acrylate buyers in Europe and the US scrounging far and wide for spot material. The first quarter of 2011 has brought no respite. Availability and upward pricing pressure still dog the market.
Demand for acrylates slows after September, but buyers expecting prices to soften have been disappointed. Suppliers said availability would remain balanced to tight in 2011, and they have been right.
Buyers moved pre-emptively to secure cargoes, but the situation was exacerbated on January 5, when French major Arkema declared force majeure (FM) on acrylate esters and acrylic acid produced in Carling, France.
ARKEMA FM SQUEEZES EUROPE
One month later, production at Carling was back on stream, leading some players to surmise that supply constraints might ease, lowering prices.
However, Arkema is coming back into the market with low inventories and peak season close at hand, leading others to speculate that supply will remain tight throughout March and into the second quarter.
European suppliers say they are currently running plants as hard as they can to meet current demand levels, but all agree that, moving into the second quarter, the increase will be more than offset by strong buyer interest.
"We don't see any relief," says one European supplier. "There are serious supply problems in the US, and with demand and pricing firm in China, there is little incentive for players in the region to ship material elsewhere."
All this has made it difficult to gauge where European spot levels should lie. Values for acrylate esters diverge widely at the moment, depending on source and grade.
While some sources claim to have secured parcels of butyl acrylate (butyl-A) on the merchant market in the low €2,000s/tonne, others say that a minimum price of €2,400 ($3,339)/tonne is more realistic. With butyl-A,S spot levels in southeast Asia passing the $3,000/tonne mark, imports below that level are now unworkable once freight costs are figured in.
"The acrylic fiber business in Asia is also very strong at the moment, which has absorbed some European material," notes one trader. "Buyers will have to pay these higher prices coming from China."
With regard to availability, 2-ethyl hexyl acrylate (2-EHA) remains the tightest ester, with offers as high as €2,600/tonne reported. Some players believe availability is improving, but they agree that more production problems would have an immediate impact.
One European producer believes prices will continue to increase, spring being peak season: "No spot material is available, so we will sell to the highest bidder."
PROPYLENE ADDS TO PRICE PRESSURE
Current market dynamics appear to be supply- rather than feedstock-driven, but continual increases in propylene values have also applied further upward pressure on pricing.
In February, propylene moved up by €35/tonne. In March, spurred by unrest in Libya and other parts of North Africa and the Middle East, it climbed another €80/tonne to €1,195/tonne, the third consecutive record high for propylene since records began in 1986.
Sources agree there is little for sellers to do but pass the increase on to the market. One seller says it will be targeting hikes of at least €100/tonne for March, highlighting its own supply position and strong demand levels.
However, buyers are starting to dig in their heels, with many unwilling to accept any increases beyond those from feedstock gains.
"Prices will stay firm," said one distributor, "but anything beyond the feedstock increases will destroy the customer base at this point."
Within the US market for acrylic acid and acrylate esters, the anticipation of more capacity from China after mid-year appears to have mitigated some of the tension of long-term volume constraints, but short supply and the buy-side pain that goes with it are expected to persist beyond 2011.
The effects of unplanned outages that hit the domestic acrylates market in late 2009 and early 2010 continue to reverberate, say market sources, limiting most buyers to historical volumes and preventing any serious inventory build among producers.
Steady production runs alone would improve the US supply-demand picture, but extra capacity will be needed to maintain market balance, given current domestic demand levels.
Many buyers are eager for the new capacity due from China's Jiangsu province in the second half of 2011, but it will not be a panacea for US supply woes. Some warn that the material will not be priced competitively enough to ease supply here or it will undercut US pricing.
Earlier this year, a lack of crude acrylic acid meant Jiangsu Jurong Chemical's esters capacity had been running at only 50% , said one market source. The firm plans to bring another 160,000 tonnes/year of acrylic acid on line in June.
US NEEDS NEW PRODUCTION CAPACITY
"US producers have two choices," a large acrylates buyer says. "Expand to fulfill customers' needs or be overrun by imports of glacial acrylic acid and the acrylate esters."
Producers will either maintain control of the domestic market by building additional capacity, the buyer adds, or allow Asian product to flood the market - first with imports, then with new plants.
New Asian capacity later this year will help ease supply tensions in the US, but the economic crisis "pretty much stopped" investment in domestic capacity, says one producer. "The way we view acrylates market demand, you need a world-scale plant coming online each year, and it's been three years since any new capacity has come on stream."
"US producers have two choices: expand to fulfill the needs of their customers or be overrun by imports"
US acrylates buyer
A modest addition is in the works: Arkema is scheduled to clear the acrylic acid capacity bottleneck at Clear Lake, Texas, by early 2013. However, no major near-term expansion is planned, despite growing demand. For example, NA Industries intends to bring a new super-absorbent polymers (SAP) plant in Bayport, Texas, on line by June 2012.
Meanwhile, demand continues to outpace supply and NYMEX crude values have been trading above $100/bbl, pressuring acrylates feedstock propylene in January and February.
But March brought some respite in the form of weaker propylene values and the absence of contract price-hike initiatives, which may be a harbinger of near-term equilibrium.
"I believe the extra Asian capacity will bring glacial acrylic acid prices down," a buyer said. "The past few months' run-up in contract prices cannot be sustained."
Early this year, a producer acknowledged customers' price pain and said that a price correction was imminent. In the first two months of 2011, however, sellers achieved an average gain of 15-16 cents/lb in acrylates contract prices.
Most sources expect supply to remain tight until October or November, but strong upward pricing may be less likely for the rest of the year, a buyer said hopefully.
Although upstream crude oil pricing and feedstock supply are unpredictable, acrylates prices are likely to remain stable until Q4.
That is, unless propylene reaches 80 cents/lb as has been forecast, one buyer said. "Then acrylates prices will follow."
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