Intermediates: From famine to feast as acrylate prices drop

31 October 2011 00:00  [Source: ICB]

After two years of tight supply and incessant price increases, acrylate buyers can breathe easy, but the opportunity to relax is a mixed blessing.

Acrylic paint, Rex Features
 © Rex Features
Acrylates producers paint a blue picture of end-market demand
Production units are operating smoothly, and acrylates are easily procured, but end markets, particularly construction, continue to slump beneath the weight of economic uncertainty, and demand for coatings and materials incorporating acrylates is weak.

With inventories building, producers must consider whether to reduce operating rates or bet on a resurgence in demand during the first quarter of the new year.

PLENTIFUL SUPPLIES

Acrylate contracts in the US first dipped in July, when contracts for glacial acrylic acid (GAA) were settled at $1.46-1.51/lb FD (free delivered), down 4 cents/lb from the June range of $1.50-1.55/lb. September contracts rolled over from August at $1.41-1.46/lb, but continued decline is in the works for October. Citing soft demand and plentiful supply, market sources reported contracts 3-8 cents/lb lower during the week ending October 19.

"Supply is plentiful, and we are getting very attractive price offers," one buyer said. "Unfortunately we don't need material because we are slow and reducing inventories prior to year end."

Contracts for butyl acrylate (butyl-A) and other esters have closely followed GAA.

Falling propylene prices also contributed to the decline. US propylene contracts for October fell by 14 cents/lb, primarily on weakening demand, putting chemical-grade propylene at 62.50 cents/lb. Growing inventories of refinery-grade propylene also contributed.

Market participants variously described buying interest for GAA as flat to 3-4% higher than one year ago. Superabsorbent polymer demand was steady to strong, they said, while adhesives was slow to steady.

Coatings remained the weakest segment amid dismal housing numbers. Pending home sales in the US fell between July and August, according to the National Association of Realtors (NAR), which cited tight lending policies among mortgage bankers and general consumer uncertainty.

Another indicator of the housing market, the monthly Architecture Billings Index (ABI) of the American Institute of Architects (AIA), fell more than 4 points to 46.9 for September. Readings above 50 indicate rising demand for design services, while numbers below 50 indicate that demand is falling.

INVENTORIES UP

One year ago, acrylate inventories were practically non-existent, but today, with production units operating smoothly and feedstock readily available, inventory levels have recovered.

"Producers are starting to indicate to customers that they could perhaps make a bit more volume available in 2012 if they pushed," said Ian Davenport, president of US-based consultancy Davenport International Associates. "Six months ago, they were saying they couldn't ever see having more to offer, but now they're being a bit more flexible regarding indications for volume in 2012."

Producers have exceeded their production forecasts, Davenport noted, suggesting that they may have been overly conservative in their projections owing to the many outages that plagued 2010.

He also surmised that customers overbought. "In the first part of the year, customers were afraid that they were going to be short during peak coatings season of Q2 [the second quarter], and because they were afraid of being short after last year, they took all their contracted material in Q1 - they didn't want to give producers an excuse to cut them back," Davenport said. "So everybody went into peak season with high inventories, but demand didn't increase - there wasn't really a peak."

GLOBAL WEAKNESS

In Europe, October contracts for acrylic acid were assessed by ICIS at €1,970-2,060/tonne FD NWE, down by €50-100/tonne.

Sources cited improved availability, lower feedstock costs, slower demand and the poor economic outlook. They expected supply to exceed demand as the year's end approaches and players watch inventory levels more closely.

Asia Acrylates Euro Acrylates
Most sources described the market as balanced to long.

On the spot market, prompt acrylic acid is weakening. Market sources put the price range at €1,930-2,000/tonne FD NWE during the week ending October 19. The gap between contract and spot is widening, some sources putting it at €90-100/tonne.

October contracts for acrylate esters were also assessed down by €50-100/tonne. During the week of October 19, butyl-A contracts were assessed at €1,750-1,830/tonne FD NWE.

In Asia, market sources expected weak demand during the fourth quarter. During the week ending October 19, regional producers continued to lower their offers in the hope of enticing buyers back into the spot market. The eurozone sovereign debt crisis, China's tightening monetary policies, Thailand's widespread flooding situation and declining feedstock prices have caused buyers to adopt a cautious stance.

In the downstream emulsions and urethanes markets, demand is weak in both China and Southeast Asia, several Northeast Asian and Southeast Asian producers said.

A producer said the demand for acrylates esters in Southeast Asia had been weak, and it had been unable to sell any spot cargoes for October.

Looking into November and December, producers and traders said little likelihood that prices would recover, as supply will continue to outstrip demand.

During the week ending October 19, ICIS assessed the CIF CMP benchmark for GAA down by $20-90/tonne to $2,430-2,440/tonne; and for butyl-A, down $50/tonne to $2,250-2,300/tonne.

  • Includes reporting by Larry Terry in Houston, Truong Mellor in London and Cheong Su Yeen in Singapore

By: Clay Boswell
+1 713 525 2653



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