Intermediates: ACN falls on weak demand

03 October 2011 00:00  [Source: ICB]

Sluggish consumer markets constrain production of acrylic fibers, ABS and SAN

Acrylonitrile (ACN) producers in Asia did not have a good summer, and the third quarter may prove no better. Prices have held up better in the US and Europe.

ACN spot prices in Asia have fallen steadily since the week ­ending April 29, when they ­peaked at $2,750-2,800/tonne (€2,018-2,055/tonne) CFR (cost & freight) NE (Northeast) Asia. As of September 23, they had fallen 29% to $1,950-$2,050/tonne.

Falling propylene values have contributed to the decline of Asian ACN prices, just as they drove the record highs of spring. However, current propylene prices of $1,470-1,570/tonne CFR NE Asia are only $100/tonne - or 16% - lower than the May 6 peak. As such, they explain only half the lost value. Weak consumer markets accounts for the rest.

ACN is a key feedstock in the manufacture of acrylic fiber, acrylonitrile-butadiene-styrene (ABS) and styrene acrylonitrile (SAN), materials with significant applications in consumer products.

Asian demand for ACN is therefore typically highest from July through September, when Chinese export manufacturers operate at peak tempo.

This year, however, the usual flood of orders never arrived. Consumers in Europe and the US - beset by widespread unemployment and rumors of impending economic collapse - have reined in spending.

Demand for ABS, which is used to make automotive components, office equipment, consumer electronics, toys and construction materials, has suffered as a consequence, producers said.

With orders for finished goods limited and unpredictable, end-users are buying only on an as-needed basis.

"The export of finished goods to the US and eurozone has slowed down this year, and the demand for ABS has been [lukewarm] since May," a Hong Kong resins trader said.

Major ABS players in Asia include Taiwan's Chi Mei and Formosa Petrochemical & Fibres Corp., South Korea's LG Chem and Kumho Petrochemical and Japan's Toray Industries.

REDUCED OPERATING RATES
ABS spot prices were assessed at $2,050-2,100/tonne CFR NE Asia in the week ending ­September 23, down from $2,170-2,200/tonne four weeks earlier.

ABS producers responded by operating their plants at just 50-70% of capacity.

Demand for acrylic fiber, which goes mainly into the production of garments and home furnishings, has been somewhat firmer. Producers have reduced operating rates, but only to 80-90%.

ACN producers have had no choice but to reduce their own operating rates to avoid building up inventories. In China, they have reduced operating rates to about 50-60%. Some, such as PetroChina subsidiary Jilin Petrochemical, are even shutting plants down.

Jilin recently shut one of two 120,000 tonne/year ACN lines at its site in Jilin because of the poor market, a company source said. The company had already shut down one of two 106,000 tonne/year ACN lines at the same site in April, and it remains off line. "We don't know when to restart the 120,000 tonne/year line," the source said. "It will depend on the market trend."

Demand for ABS, SAN and acrylic fiber has also been weak in the US and Europe, but ACN prices have held up relatively well.

In Europe, September contracts for ACN were settled at €2,090-2,118/tonne ($1,535-1,556/tonne) FD (free delivered) NWE (Northwest Europe), €50/tonne lower than August, partly because of lower raw material costs - propylene contracts for September were down by €37/tonne from August - and partly in acknowledgement of soft demand.

ABS demand has not picked up as it usually does after the traditional August holiday shutdowns - a situation that some in the market attributed to caution in the face of general economic uncertainty.

Some sources were optimistic that business would return in the second half of September, but others were more anxious.

Demand "is getting worse if anything," said one buyer. "There is a worrying lack of order intake."

An influx of low-price ABS from Asia has also complicated matters, adding to the downward price pressure on European ABS.

ACN ­contracts for October will be e_SDHpnegotiated once monthly propylene negotiations, now underway, are completed.

One buyer expected October ACN prices to fall well below any related feedstock adjustments, because of weak demand and low manufacturing rates for derivatives, particularly plastics. A producer, however, said that though propylene was expected to soften slightly, upstream ammonia had been firming, while demand from the downstream acrylic fiber ­sector was picking up.

Indeed, prices have been ­moving up in the ammonia market. Maintenance turnarounds in Yuzhny and the Baltic and erratic delivery of gas from Trinidad have led to tightened availability, while demand from the US, Europe and North Africa has been strong.

The ACN spot market has been quiet, and ABS producers having little need for extra material. Although producers and traders have been offering material in the range of $2,050-2,150/tonne CIF (cost insurance and freight) WE (Western Europe), buyers have held off in the expectation that prices would fall further.

DISAPPEARING MARGINS
In the US ACN supply has been ample, and spot prices continued to slip during the week ending September 23. At $2,010-2,030/tonne, the assessed range was $140-190/tonne down from the week before.

ACN market players saw parallels with the global economy - slow movement, transactions on an as-needed basis and margins at the bare minimum.

With demand for ACN sluggish, some producers have slowed or even shut down production. One Mexican producer shut down ­production entirely. Depressed demand, coupled with high production costs and low prices made profitability too difficult, a company source ­explained.

The facility has enough material to satisfy domestic needs through October.

A sister facility in Brazil continues to manufacture ACN. If the company can renegotiate its maintenance contract and delay a turnaround until November, the site will be closed at that point until the end of the year.

The decline in global stock markets has not been good for the ACN market, a trader added. "We need stability," he said.

However, one buyer said the market has dealt with the situation well. Regular price reductions and demand slowdowns will lead to a soft landing, he postulated.

Includes reporting by Helen Yan and Clive Ong in Singapore, Dolly Wu in Shanghai and Amandeep Parmar in London

By: Clay Boswell
+1 713 525 2653

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