Intermediates: Japan MEK outage has global consequences

18 April 2011 00:00  [Source: ICB]

Correction: In the article headlined: "Intermediates: Japan MEK outage has global consequences," please read, in the 19th paragraph, "Producers in Europe include Exxon, Shell and Sasol," instead of: "Producers in Europe include Exxon, Shell, Sasol and Arkema." A corrected story follows.

Rising prices and high demand are drawing MEK to Asia from Europe and the US

The earthquake that struck Japan on March 11 took one of Asia's key suppliers of methyl ethyl ketone (MEK) off the market. Spot prices have since risen, not only in the region, but also in Europe and the Americas.

MEK is a low-boiling solvent widely used in nitrocellulose, acrylic and vinyl coatings. Most MEK global production is consumed by the paints and coatings industry. Demand growth is slow and concentrated in Asia.

Japan has three MEK producers. Operations at Idemitsu Kosan's 40,000 tonne/year plant in Tokuyama, Yamaguchi Prefecture, and Tonen Chemical's 90,000 tonne/year plant in Kawasaki, Kanagawa Prefecture, were unaffected by the earthquake.

However, Maruzen Petrochemical's 170,000 tonne/year plant in Ichihara, Chiba Prefecture, was severely damaged. The company has not said when it expects the plant to return to production, but market sources speculate that the wait might be as long as a year.

Asia's MEK market responded quickly, and prices rose from $1,720-1,750/tonne CFR (cost and freight) NE (Northeast) Asia on March 11 to $1,800-1,900/tonne one week later. Supply tightened further, and as of April 8, desperate buyers had driven prices to $2,500-3,100/tonne.

In the 17 years since ICIS began tracking MEK prices in Northeast Asia, they have never approached such heights. The previous record, in August 2008, was only $1,580-1,630/tonne.

A TWO-TIERED MARKET

The broad spread of current prices reflects the two-tiered market that has developed. Buyers seeking spot supplies have paid around $3,000/tonne CFR Asia or higher for bulk shipments, whereas some distributors and end-users are receiving more generous terms from their long-term suppliers.

Demand from South Korea and Japan has been strong. In Japan, buying ideas were $3,000-3,100/tonne CFR during the week ending April 8. In South Korea, buying ideas for bulk cargoes in May were $2,400-3,000/tonne CFR.

ICIS assessed MEK spot prices in Southeast Asia at $2,500-3,100/tonne CFR. One producer reportedly offered MEK at $2,800/tonne ex-tank in Singapore, while another suspended sales in Singapore and Malaysia because of low stocks. A major distributor offered a minimum of $3,500/tonne DEL (delivered) in Indonesia, Thailand, Malaysia and Singapore.

South Korea's sole producer of MEK is SK Energy, with a 50,000 tonne/year plant in Ulsan. Other regional producers include Taiwan's Tasco Chemical, which has a 120,000 tonne/year plant in Kaohsiung, and Thailand's Bangkok Synthetics, which has a 20,000 tonne/year plant at Map Ta Phut.

China's MEK production capacity has been growing quickly in the past decade. There are now 12 plants for a capacity of 539,000 tonnes/year, according to ICIS plants and projects. Most of these plants are relatively small, but Zibo Qixiang Tengda Chemical operates a 120,000 tonne/year unit at Zibo, in Shandong province.

Although these producers would like to raise their operating rates to serve the increasingly lucrative export market, they have been hampered by a shortage of feedstock. The main commercial route to MEK is the dehydrogenation of secondary butanol.

GLOBAL TIGHTENING

The rising prices and high demand in Asia have also drawn the attention of MEK producers in Europe and the US, which are directing increasing volumes toward Asia. At the same time, imports from Asia are drying up. The markets in these two regions have tightened, and prices are rising.

Participants in the US market said supply there had already been tight, and now it had become worse, with sales controls in effect and purchases limited to historic volumes.

"We are looking for bulk loads for a major customer of ours and having trouble finding anyone with available material," remarked a major US distributor.

During the week ending April 8, contract price initiatives of plus 5 cents/lb ($110/tonne, €77/tonne) for April had begun to settle at the full increase, helped in part by the market pressure from Asia, market sources said. Spot activity was reportedly scant, although prices had been heard in the range of $1.05-1.13/lb, the latter end before discounts. One buyer said he had been offered spot material for as high as $2.15/lb.

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US MEK suppliers include ExxonMobil, Shell and Sasol.

In Europe, MEK prices surged during the week ending April 8. Spot prices were assessed at €1,570-1,850/tonne ($2,271-2,676/tonne) FD (free delivered) NWE (Northwest Europe), a weekly rise of €20-250/tonne, with the top end of the range representative of the distribution market.

Producers in Europe include Exxon, Shell and Sasol.

Sources in Europe said all spare distribution volumes were being exported to Asia. "There are hardly any molecules, it's all shipping to Asia," said a trader. "One producer is putting its customers on allocation to ship to Asia."

European producers were receiving requests from Asia, and export volumes were expected to increase in the next few weeks.

THREAT OF SUBSTITUTION

Sources in Asia told ICIS that downstream consumers in the paints and coatings industry were already exploring substitution.

"Up to 30% of MEK can be replaced with ethyl acetate, which means an increase of about 10% in demand for ethyl acetate," a Southeast Asia-based distributor noted. That would be equivalent to an increase in demand of around 4,000 tonnes per month of ethyl acetate, he added.

Includes reporting by Yeow Pei Lin and Helen Lee in Singapore, Mark Victory in London, and Larry Terry in Houston


By: Clay Boswell
+1 713 525 2653



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