News Focus: Supply constraints to drive global oxo-alcohol market

02 April 2012 00:00  [Source: ICB]

Restocking activity along the value chain has improved operating performance in the global oxo-alcohols market during the first quarter of 2012, reversing the destocking trend seen in the fourth quarter last year.

Briefcase full of Euros, Rex Features

 © Rex Features

Oxo-alcohols sellers are doing good business as buyers restock

Germany-based oxo-chemicals producer OXEA
 said last month that business had improved in the first two months of the year despite significant increases in raw material prices.

On reporting its latest financial results, it said average monthly sales volumes in January and February had increased by 8.1%, while revenues grew by 9.5% compared with the fourth quarter of 2011, partly because of restocking activities by its customers.

The positive trend is expected to continue throughout the ­second quarter, as low inventories and the start of the turnaround season are likely to support ­producers' attempts to pass on rising upstream propylene costs to customers.

END USE WEAKNESS

However, real global consumption of oxo-alcohols, which are mainly used in the construction, appliances and automotive industries, remains sluggish, with only a marginal recovery from the exceptionally low levels seen during the second half of 2011.

The outlook offers little consolation, as global demand is expected to remain below pre-crisis levels for the rest of this year, driven by depressed conditions in the key downstream construction industry.

In the European market, demand started to shrink from mid-2011, when customers became hesitant to commit to large quantities, given low downstream demand and eurozone economic uncertainty. Recession fears prompted many customers to reduce stocks to minimum levels, and prices dropped on poor buying interest, ample availability and strong domestic competition, with butanol values hitting a 20-month record low in December.

During the first quarter of 2012, low inventories have led to restocking across the chain, while production constraints have tightened availability and led to greater price increases than those suggested by rises in feedstock propylene costs.

However, most producers are unable to comment on real demand levels as in most cases inventories are only enough to supply regular customers.

"When you have major disruptions in the market it appears that you can sell everything you possibly can, but there is always the question of whether demand is real," a producer said.

The outlook for the next six months points to balanced-to-tight conditions and firming prices as turnarounds have been scheduled at Europe's five largest oxo-alcohols suppliers during the industry's peak season of April-September.

"Spring and autumn [in Europe] are the peak seasons, so it is going to be a tough year," a producer said.

The fourth quarter of 2012 could bring supply shocks across the chain, as the end of the turnaround season is to coincide with the start of the year-end destocking cycle.

EXPORTS CHALLENGE

The extent of the downturn will depend not only on the general economic outlook, but also on whether softening domestic ­demand and rising inventories can be at least partly compensated by higher export volumes to the key net-importing Asia-­Pacific market.

Throughout most of 2011 and thus far during 2012, the high price of propylene contracts in Europe, currency exchange volatility and slow growth rates in Asia-Pacific have prevented any attempts to offset poor domestic conditions with exports.

In the US, fundamentals are largely balanced, with sluggish but stable demand offset by tight supplies of n-butanol (NBA) and 2-ethylhexanol (2-EH).

The key downstream paints, coatings and plasticiser markets have not recovered to any significant extent since the 2009 recession, partly because of depressed conditions in the construction sector, but supply constraints are expected to help producers maintain margins in the face of higher propylene and energy costs.

In addition, US-based oxo-­alcohols producers enjoy greater opportunities to offset domestic downtrends with export activity than their European counterparts.

In December 2011, during the industry's slow season, the US exported more than 26,000 tonnes of NBA and more than 8,000 tonnes of 2-EH to markets such as China and Canada, according to data from the US International Trade Commission.

In the Asia-Pacific market, spot prices increased at the beginning of the year. Buyers were keen to secure January and February cargoes in expectation of rising spot prices and tightening supply towards the end of the first quarter.

However, the upward trend in prices was short-lived and values dropped in February on slow demand from the key downstream markets of plasticisers, acrylates and solvents.

Consumption in the Chinese market, a key driver of Asia-­Pacific prices, has shown no signs of a significant recovery, but the turnaround season of April-June is likely to reduce availability, while imports from the US could decrease on rising US propylene costs.

  • Additional reporting by Frank Zaworski and Cheong Su Yeen

By: Abache Abreu
+44 2086523214



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