16 November 2011 16:06 [Source: ICIS news]
LONDON (ICIS)--European adipic acid producers are considering suspending production at their plants because of weak demand and low margins, they said on Wednesday.
“Adipic acid demand is still very weak, and it will continue. We’re discussing shutdowns,” a producer said.
November consumption is expected to be as much as 20% below October levels because of deteriorating macroeconomic conditions which have reduced downstream demand. October demand was already weak because of fears over the global economy.
Year-on-year demand in November is expected to fall by up to 50%, according to some buyers.
Nevertheless, a minority of producers argue that demand is improving in November compared to October, with expectations of a 10% increase in November month-on-month demand, because of restocking in the downstream automotive industry.
“November is slightly above expectations – 10% above October. Really it’s because the market’s been regulating inventories. One month there’s a big break [in demand], but it broke too much and inventories are too low,” a producer said.
The majority of sources have seen a reduction in November demand.
“Producers are saying it’s better than it is as they’re struggling. They're desperate for any volume,” a buyer said.
Coupled with weak demand, high stocks and low buying interest in Asia have weakened exports from Europe, which is a major exporter to Asia. This has caused a surplus of material in Europe.
Asian adipic acid spot prices fell by $100/tonne (€74/tonne) this week, to $1,700-1,750/tonne CFR (cost and freight) NE (northeast) Asia - China and Ukraine origin - because of weak demand. Asian spot prices have fallen by $300-350/tonne in the past four weeks.
There are expectations that exports could recover after the 2012 Lunar New Year holiday in Asia, but sources said that predicting demand that far ahead was not possible because of the current volatility in financial markets.
Euorpean spot offers have been heard as low as €1,300/tonne FD (free delivered) NWE (northwest Europe), €270-370/tonne below contract levels, as sellers look to offload material. Nevertheless, the majority of buyers are covered by contracted volumes and activity is thin.
November contract negotiations are ongoing.
European adipic acid producers continue to target November contract reductions in line with the feedstock benzene November contract price fall of €41/tonne. Although adipic acid demand remains weak, producers argue that low margins allow no room for further price erosion.
Buyers are targeting price reductions of €70-150/tonne because of weak demand. Some said they have already achieved some success at reductions of above €100/tonne from October.
“We’ve already agreed decreases [in November contract prices] of over €100/tonne with three producers,” a buyer said.
($1 = €0.74)
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