30 November 2011 23:59 [Source: ICIS news]
LONDON (ICIS)--European adipic acid November contract prices have fallen by €270/tonne ($360/tonne) because of weak demand and oversupply, buyers and sellers said on Wednesday.
Consumption is low because of year-end destocking, macroeconomic fears and an absence of exports to Asia.
Demand there is weak because of high stock levels in the region, particularly China. Material from China is now being offered into Europe at a euro equivalent of as low as €1,200/tonne FD (free delivered) NWE (northwest Europe). Asian buying interest is not expected to return until the end of the Lunar New Year in late-January.
“In the last 10 days, we’ve been contacted by a lot of Chinese sellers. Spot product’s available for €1,200/tonne FD NWE from Asia,” an adipic acid buyer said.
November adipic acid contracts settled at a net level of €1,300-1,400/tonne FD NWE.
European buyers are destocking in order to reduce working capital on year-end balance sheets, which has further weakened demand.
Macroeconomic fears have led to a cautious buying strategy, and deteriorating economic conditions have reduced downstream offtake because of low consumer purchasing power. November 2011 adipic acid consumption was 20% below the same period in the previous year, according to market estimates.
“Companies are being very prudent. There’s worries over a recession like 2008/2009,” an adipic acid compounder said.
Poor demand, low exports, and imports from Asia have caused oversupply in Europe.
“Demand is low, which may have its origin in destocking. The value chain is long, so destocking takes longer. There’s more than enough material available on contract,” an adipic acid producer said.
A minority of players saw November contract prices as low as €1,200/tonne, but this was not considered representative of the bulk of business.
Adipic acid consumption is not expected to increase for the remainder of 2011. Views on consumption in January 2012 are divided, and volatile trading conditions mean that forecasts are subject to change.
Several players on both sides of the market are expecting demand to rise in Janaury because of restocking in Europe. They argue that pipelines are low, which will cause a sharp increase in demand in the new year.
“We’re expecting increased buying activity in January on an empty pipeline. The market will be short as soon as there’s any sort of production problem,” another compounder said.
Other sources, however, are expecting demand to remain weak until February because of the Lunar New Year, which will keep export volumes low until the end of January.
“Generally speaking the uncertainty is ongoing. We can’t count on any change [in demand] before the Lunar New Year. Hopefully February will see an improvement,” an adipic acid producer said.
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