FocusEurope acrylics market moves from 'tight' to 'balanced'

07 July 2011 15:37  [Source: ICIS news]

LONDON (ICIS)--Following continuous price increases in the first half of 2011 due to supply constraints and healthy demand, consumers in the European acrylic acid (AA) and acrylate esters market are now actively pushing for significant reductions in July.

The €75/tonne ($107/tonne) drop for feedstock propylene this month, as well as the expected dip in demand for the summer, has galvanised buyers to seek a similar reduction for July material.

In some cases, customers are looking for larger decreases in order to claw back some of the margins lost since the end of 2010.

“We are currently in negotiations with our supplier and we are looking for a €100/tonne reduction in July,” said one consumer.

Prices for the monomer AA have moved up by approximately €310/tonne since December last year. This is on the back of unplanned domestic production problems and a lack of imports from Asia keeping the European market tight. Similarly, prices for the esters moved up by an average of €260/tonne in the same period, according to ICIS data.

In 2010, the AA and acrylate esters markets were plagued by unplanned outages in Europe and the US as well as consistently strong demand. Contract prices for the esters increased by almost 80% in the year, while AA contracts moved up by €845/tonne from January-December.

European suppliers are by and large willing to concede a price reduction this month, purely on the basis of lower raw material costs.

One major producer said: “I would not really call it downward pressure, more a correction of the price levels in relation to raw materials evolution. In the context of the current propylene reduction, this seems only fair for acrylics customers.”

However, sellers have been quick to stress that while some downward movement on pricing is inevitable, this does not mean that the market is necessarily weakening.

One producer pointed out that the supply/demand dynamic of the market, while improving since the second quarter of 2011, is balanced as opposed to long.

“We did see a dip in acrylics demand towards the end of June,” said the producer, but stressed that this was down to end users carefully managing stock levels in order to meet half-yearly inventory management targets as opposed to any wider downward trend in the market.

Another supplier said: “Customers needed to reduce inventory for H1 [January-June] 2011 financial reporting, as well as get rid of what could potentially be expensive stocks in light of the expected price reductions. Therefore the slowdown towards the end of June was not an indicator of market demand.”

Some suppliers have also suggested that the slight downturn at the end of June would be countered by a spike in demand this month as buyers seek to replenish empty stocks. However, with activity traditionally expected to quieten as the market moved into August and the holiday period, other players felt that any upswing this month would be minimal.

European acrylics values have largely been dictated by a tight supply situation as opposed to feedstock developments in the last two years, as strong demand from the coatings, adhesives and superabsorbent polymers sectors and sporadic production levels kept prices at a premium.

This was in evidence in May when prices for some ester grades continued to move up despite a €35/tonne drop for propylene. This was also reflected in June, when prices across all grades largely rolled over despite a propylene decrease of €40/tonne.

Many players expected market stabilisation to take some time, but with the scheduled arrival of imports from Asia – where the key Chinese market has been losing ground due to softer end user demand – many buyers are hoping this will relieve the tightness that has characterised Europe since last year.

“Consumption is lower, so availability is sufficient,” said one consumer. “Material is perhaps not freely available, but the market has now moved from tight to balanced.”

The consumer also said that many European sellers have started offering July cargo aggressively in order to keep Asian material out of the market, and felt that a €75/tonne reduction in line with the propylene drop was easily achievable.

However, not everyone in the market is convinced. Despite talk of material arriving from Asia since May, a handful of buyers and sellers have queried the actual volumes involved and any potential impact on the European supply/demand balance.

“There has certainly been a lot of talk about Asian material, and we have seen some aggressive offers from Korean sellers,” said one producer. “However, with the Chinese market starting to recover, this could mean that suppliers in the region will prefer to keep volumes there.”

($1=€0.70)

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By: Truong Mellor
+44 208 652 3214



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