Intermediates: Acetic acid prices rise in Asia and Europe

07 May 2012 00:00  [Source: ICB]

Celanese shuts down in Singapore, and BP declares force majeure at Hull, UK

Acetic acid prices are rising in both Asia and Europe, despite ongoing globally weak demand.

The uptick in Asia's prices suggest that months of reduced operations may be paying off. Sources tell ICIS that the market is better balanced, and they expect improvement to continue.

Spot prices in Asia have increased by 14% since the beginning of the year. Assessed at $445-455/tonne in late December, the weekly range for acetic acid CFR (cost and freight) SE (southeast) Asia was pegged at $520-540/tonne on April 27.

Over the same period, feedstock methanol rose from $375-380/tonne CFR SE Asia to $385-390/tonne - a modest increase of 3% that leaves breathing room for producers.

First-quarter contracts, which are still being negotiated, may confirm the better match between supply and demand. In northeast Asia, fourth-quarter 2011 contracts were settled at a $50/tonne discount, but suppliers are pressing for a $20-30/tonne increase in contracts for the first quarter.

THE SHRINKING MARGIN
Asian acetic acid margins shrank dramatically between May 6 of last year, when spot prices peaked at $670-680/tonne CFR SE Asia, and December, when they bottomed out at $445-455/tonne. Weak demand, particularly from producers of the polyester feedstock purified terephthalic acid (PTA), and new production capacity in China and Taiwan had resulted in too much material on the market.

Manufacturers began dialing back production in November, and some even shut down to wait it out. Late in the first quarter, global player Celanese shut its 600.000 tonne/year plant in Singapore, although it is one of the lowest-cost producers in Asia.

"The plant is still idled as we speak," Mark Rohr, the new Celanese CEO, said during an earnings call last month.

The market in Asia outside of China had become "sloppy," Rohr explained, referring to the oversupply. High oil prices had also taken a toll, since the facility consumes an oil-based feedstock.

"We felt we should just stop participating in that market and start signaling our intent not to sell material at these prices. We've gotten some good response pretty quickly from our customers relative to that," Rohr continued. "As soon as we can see a situation where margins have returned and demand has returned in a balanced fashion, then we'll bring it back up. But until then, we'll keep it idled."

For buyers in India, acetic acid is still out of balance, but now there is too little. Less product has flowed into India from east Asia and the Middle East, and buyers have had trouble meeting requirements since mid-March.

Chinese acetic acid producers and traders said they had run out of spot cargoes. A heavy turnaround season for south Asian producers has added to the problem, and turnarounds set for the near future will hinder a recovery.

For example, Malaysian producer BP Petronas Acetyls is scheduled to shut its 535,000 tonne/year plant at Kertih, Terengganu, in early May for a two-week turnaround. The plant is already operating at a reduced output of around 60% of capacity, according to sources close to the company.

Saudi Arabia's International Acetyl Co (IAC) shut down its 460,000 tonne/year acetic acid plant in Jubail Industrial City for maintenance in early April, but a source at the company said it would be restarted by May, and if no problems arise, IAC will have cargoes for sale in June.

The tight market has propelled spot acetic acid prices to six-month-highs of around $540-570/tonne CFR S (south) Asia during the week ended 27 April, from four-month lows of around $465/tonne in late March, according to assessments by ICIS.

IRAN LOGISTICAL PROBLEMS
Sources in the market said that April had been especially difficult because Iranian cargoes could not be shipped in time, the result of Western sanctions that have made it difficult to secure suitable vessels. Indian buyers had to scramble to secure spot material from non-traditional sources such as Taiwan.

"The problem is that product is not available," an end-user remarked. The end-user said that no vessel is available from Iran for May shipments.

Other importers disagreed, noting that China's Sinochem-owned vessels are able to ship cargoes from Iran. "Vessels owned by Sinochem are now discharging at west coast India," an India-based trader said during the week ended April 23. "Thereafter, they would be able to call at Iranian ports."

Most buyers said the upward price trend is unsustainable, and they were approaching June shipments cautiously in the expectation that supply would ease by then in line with the restart of production at the IAC facility.

Major acetic acid producers in Asia include US-based Celanese; UK's BP; China's Jiangsu Sopo, Shanghai Wujing, Yankuang Cathay Coal Chemicals, Henan ShunDa Chemical and Hebei Yingdu Gasification; Taiwan's Chang Chun Petrochemicals; India's GNFC; and Iran's Fanavaran Petrochemical.

Acetic acid prices have strengthened in Europe, as well, mainly on supply.

First-quarter contracts were assessed at €400-500/tonne FD (free delivered) NWE (northwest Europe), down from the fourth quarter by €30-40/tonne. April contracts, by contrast, were settled at a rollover to a modest increase from March, and ICIS increased its assessment by €10-30/tonne ($13-39/tonne) to €400-420/tonne FD (free delivered) NWE (northwest Europe).

The trend is likely to strengthen in the wake of BP's announcement that a syngas leak has hobbled a production unit at its 532,000-tonne/year facility in Hull, UK. BP declared force majeure on April 27 and placed customers on 50% allocation.

The firm estimated that repairs would take around 30 days.

Other major producers in Europe include Wacker Chemie, with a 140,000-tonne/year plant in Germany; Azot Severodonetsk, with a 150,000-tonne/year plant in Ukraine; and Metanolsko Sircetni Komplex (MSK), with a 100,000-tonne/year plant in Serbia.

Market sources said they expected spot prices to rise rapidly, with estimates heard in the range of plus €20-50/tonne.

The outage is also expected to affect May and second-quartercontracts that have not been ­concluded.

One buyer said he had agreed most Q2 contracts at a rollover to a modest increase, but he expected suppliers to seek higher prices for contracts that had yet to settle.

Includes reporting by Helen Lee in Singapore, Lane Kelley in Houston and Sam Weatherlake in London

By: Clay Boswell
+1 713 525 2653

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