INSIGHT: Europe epoxy resins players hope for improved market

26 August 2011 16:43  [Source: ICIS news]

By Janos Gal

LONDON (ICIS)--As summer draws to a close, many European epoxy resins players are hoping for improved market conditions in September following price drops and declining demand from June to August.

Epoxy resins demand in Europe has steadily declined in recent months, which has contributed to the accumulation of surplus material on the market and driven prices down.

A summer fall is unusual as it is traditionally the strongest season for epoxy resins, when the downstream construction, electronics and automotive industries boost demand.

Demand from the automotive industry has been strong and still remains healthy, but this cannot be said about the other two sectors.

As many countries in Europe are trying to cut budget deficits and reduce debt, public construction projects have been scaled back and thus demand for epoxy resins has dropped.

Demand from the electronics industry has also fallen, because consumers are less willing to spend on electronic goods in uncertain economic times.

The budget cuts and monetary tightening has also affected China. The Chinese government has scaled back on many public projects, including downstream wind farm construction, and scrapped special subsidies. This has affected demand for both domestic material and European imports in China.

Epoxy resin is used to make the blades of wind turbines.

"I believe the current demand slump is a pause while the [Chinese] electrical grid gets caught up. The issue was that the electrical grid was not keeping pace with the wind farm installations," said a western producer.

China's national grid is not ready to transport the additional electricity output generated by the wind turbines, and because of this a large number of them are not connected.

According to research by Ghent University in the Netherlands, up to one-fifth of installed turbines in China are off the national grid.

Another factor for the slowdown is that in June the Chinese government scrapped a subsidy that encouraged domestic wind turbine producers to buy home-made parts for the turbines.

The estimated size of the individual grants ranged between $6.7m (€4.7m) and $22.5m, according to the United States Trade Representative.

"There has been a major drop in demand [for epoxy resins] in China because the government has scrapped a special subsidy to Chinese wind turbine producers. This has caused a sudden drop in buying interest," said a European epoxy resins buyer.

"The Chinese government has also reduced funding for a lot of wind projects and its monetary tightening has made it difficult for producers to get credit. China used to be the driver of the market when the market went up, but now European exports to China have dropped," the buyer added.

Because there is less incentive in China to produce wind blades, demand for epoxy resins has dropped.

For European players this means they are unable to sell as much specialty product to China. The fall in demand has left the European market with surplus material that producers are now seeking to offload. This has led to price decreases in both July and August.

August liquid epoxy resin (LER) contracts settled down by €100–150/tonne at €2,750–2,850/tonne FD (free delivered) NWE (northwest Europe), while solid epoxy resins (SER) were down by €100/tonne at €2,850–3,000/tonne FD NWE.

For September, European players predict a rollover. Although demand is weak and there is enough material on the market, prices are not expected to fall because of increasing feedstock costs and upstream production issues at phenol producer INEOS Phenol.

The company declared force majeure on phenol on 15 July, and this remained in place until 22 August. It also plans to close for maintenance for four weeks in September, which may tighten the market.

One trader said that epoxy resins producers will not offer price reductions because the price of upstream phenol has increased by more than €100/tonne in August, which will drive the price of feedstock bisphenol-A (BPA) up in September.

However there is scepticism from buyers, which say that there is plenty of material on the market to satisfy demand.

"The force majeure and four-week maintenance in September will have no impact because there is enough epoxy on the market and extra material can be sourced from imports as well," said a buyer.

"I do not expect any change [in September]. The market has been performing below expectations throughout the summer and is likely to remain that way until the end of the year," the buyer added.

Epoxy resins are polymers used in adhesives, coatings, paints and structural parts for automotive, aerospace and aircraft industries and for the construction of wind turbines.

($1 = €0.70)

For more on BPA visit ICIS chemical intelligence

By: Janos Gal
+44 208 652 3214

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