Corrected: INSIGHT: Reach and the evolving Europe plasticisers market

17 August 2011 18:59  [Source: ICIS news]

By Mark Victory and Abache Abreu

Correction: In the ICIS news story headlined “Reach and the evolving Europe plasticisers market” dated 17 August 2011, please read in the ninth paragraph … active in the switch-out of propylene-based DOP to di-propyl heptanol alcohol-based DPHP … instead of … propylene-based DOP to butane-based DPHP …. A corrected story follows.

LONDON (ICIS)--EU-wide environmental restrictions have transformed the structure of the European plasticisers market over the past decade, with most producers investing in alternative compounds that do not need authorisation to be placed on the market.

Low-phthalate plasticisers such as dioctyl phthalate (DOP), di-n-butyl phthalate and butylbenzyl phthalate were included on the Reach (Registration, Evaluation, and Authorisation of Chemicals) regulation in February 2011 and are expected to be phased out by February 2015 unless an application for authorisation is made and granted before July 2013.

The negative sentiment in DOP, which accounts for two-thirds of the low-phthalate market, has forced producers to run their facilities at reduced capacities and, in most cases, switch to high-phthalate plasticisers such as di-isononyl phthalate (DINP), di-isodecyl phthalate (DIDP) and di-propyl heptyl ester (DPHP).

According to the European Council for Plasticisers and Intermediates, risk assessments have shown positive results regarding the safe use of this group of substances. They have all been registered for Reach and do not require any classification for health and environmental effects, nor are they on the candidate list for authorisation.

The decline in the use of DOP has been accompanied by an increasing penetration achieved by high phthalates, which now represent more than 80% of plasticiser consumption in Europe. The remaining, and ever-declining, share of the market belongs to low phthalates, of which DOP is by far the most widely used.

Although European DOP capacity is estimated at 200,000 tonnes/year, consumption has been reduced year on year to just above 100,000 tonnes/year, according to market sources.

In addition to environmental pressure, the European DOP market has faced increasing challenges to access affordable propylene supplies and securing 2-ethylhexanol (2-EH) availability. For instance, DINP producers have been able to lower prices because butane-based isononanol (INA), from which DINP is produced, has lower conversion costs than propylene-based 2-EH, the feedstock for DOP. Back integration in the European DOP market has therefore become a critical competitive advantage.

Although the effect of environmental restriction and feedstock costs and availability on DOP consumption patterns is evident, the producers’ response to the downward trend has been far from unified. Whereas some have reacted quickly, switching to alternative compounds, others intend to seek authorisation to ensure the continued availability of DOP.   

Germany-headquartered BASF, the world’s second-largest producer of plasticisers, has been especially active in the switch-out of propylene-based DOP to di-propyl heptanol alcohol-based DPHP, as well as to non-phthalate specialties such as di-isononyl-cyclohexane dicarboxylate in Europe and the US. 

Elsewhere, French specialty chemical company Arkema has continued to invest in DOP and is waiting for authorisation to continue production beyond 2015. In January 2011, Arkema became the DOP market leader in Europe – accounting for nearly 50% of total output – after acquiring Luxembourg-headquartered Oxea Sarl’s sales and marketing of its DOP business.

Other producers of plasticisers such as Sweden’s Perstorp, Italy’s Polynt, Eastman Chemical of the US and Switzerland’s DEZA continued to produce DOP while gradually shifting capacity to high phthalates and specialties such as trioctyl trimellitate and dioctyl terephthalate.

The move away from DOP is not expected to affect overall demand in the upstream phthalic anhydride (PA) market, because consumption is expected to transfer to other long-chain phthalate-based alternatives such as DINP.

“Performance [of non-phthalate alternatives] is not the same. We’ll always need long-chain phthalates,” one PA trader said.

Of more concern than end-user demand to PA traders and producers is the availability of oxo-alcohols – which are produced by a limited pool of manufacturers – for use as an intermediate in the manufacture of plasticisers. Oxo-alcohol shortages will place limitations on the production of plasticisers, lowering the need for PA as a feedstock.

“The main problem will be the oxo-alcohols needed to make [plasticisers], as they’re held by a few people. The question is, will there be a shortage?” the trader added.

The effect has already been seen in the European PA market – production problems in the oxo-alcohol market limited PA demand in the second quarter because it reduced operating rates in the DOP market.

The European PA market is structurally oversupplied and any downturn in demand caused by lower plasticiser production will only exacerbate the situation.

PA has been oversupplied since 2008 because demand has not recovered since the global economic recession.

Some players have estimated that there is as much as a 100,000 tonne/year gap between supply and demand levels.

The major downstream markets for PA are in construction and automotives, which are heavily linked to GDP. With fears over macroeconomic factors rising because of the European debt crisis and US downgrade, the outlook for European growth is looking less positive. The effect of deteriorating economic conditions is already being seen. Yesterday it was announced that eurozone growth in the second quarter of 2011 fell to just 0.2% from 0.8% in the first quarter.

The impact of weak consumption in the PA market is eroding margins, as upstream products outperform their downstream rivals.

For example, PA producers estimate that margins were eroded by €200–300/tonne ($286-$429/tonne) during 2010 because poor consumption meant feedstock orthoxylene (OX) cost rises could not be passed on to customers.

Players have been calling for PA market rationalisation to tackle the oversupply for three years, but so far the number of actors in the market remains unchanged from pre-recession levels of 2007, and there have been no publicly announced plans for production closures in the near future.

Reach is the main general European chemicals regulation, which entered into force on 1 June 2007. Producers and importers are required to provide data to the European Chemicals Agency on the substances they produce or import to demonstrate that they are being safely produced and used.

Environmental regulations have added pressure to the European plasticisers market and chemical industry in general – long challenged by a slowdown in domestic demand and increasing competition from emerging economies such as China, India, Russia and Brazil. However, it has also opened up opportunities for the industry to capitalise on its historic advantage in innovation and stay ahead of the competition through sustainable solutions.

($1 = €0.70)

For more on plasticisers visit ICIS chemical intelligence

By: Abache Abreu
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