FocusCorrected: Weak global fibre demand puts downward pressure on chem prices

05 July 2012 17:41  [Source: ICIS news]

Correction: In the ICIS story headlined "Weak global fibre demand puts downward pressure on chem prices" dated 5 July 2012, please read in the seventh paragraph ...and €20-80/tonne in Europe... instead of ...and €20-70/tonne in Europe...In the eighth paragraph please read ...values are €480/tonne below... instead of ...values are €470-490/tonne below... A corrected story follows.  

LONDON (ICIS)--Weak demand from the downstream fibre market is putting pressure on fibre-linked chemical market prices, according to buyers and sellers this week.

“The biggest pressure [on prices] is from the fibre guys. They have poor derivatives demand and high stocks,” an acrylonitrile (ACN) buyer said.

There have been strong price decreases in Europe and Asia during the second quarter for the polyamide chain, polyethylene terephthalate (PET), recycled PET (R-PET), and ACN. Much of the price erosion has been driven by weak end-use demand.

The biggest falls have been seen in ACN spot prices. ACN is used to make acrylic fibres. European ACN spot prices have fallen by $750-900/tonne (€600-720/tonne) CIF (cost, insurance and freight) WE (west Europe) since the 1 April, and Asian spot prices have fallen by $700/tonne CFR (cost and freight) NE (northeast) Asia.

During the same period, Asian PET fibre-grade spot prices have fallen by $310-400/tonne CFR NE Asia, and European R-PET spot colourless flake prices by €60-100/tonne.

In the polyamide chain, nylon 6 (or polyamide 6) contract prices in Europe have fallen by €200-250/tonne from April to June, and are expected to fall a further €50-100/tonne in July.  Asian caprolactam (capro) contract prices have fallen by $340-350/tonne in the same period, and European contract prices have dropped by €140-150/tonne.

Adipic acid contract prices fell by $160-200/tonne in Asia and €20-80/tonne in Europe from April to June.

In the European adipic acid market, price erosion has been more limited than for other fibre-linked products because adipic acid margins were already low. European adipic acid contract values are €480/tonne below June 2011 levels.

Although weakness in non-fibre downstream applications has added to the downward price pressure in fibre-linked chemical markets, the end-use fibre market has been the most sharply affected.

“[Fibre demand] cannot be lower than it is at the moment,” a nylon 6 buyer said.

Fibre production rates have been estimated as low as 50% of capacity by market players. Nevertheless, estimates of operating rates vary from sector to sector, with some niche applications seeing operating rates as high as 80% of capacity.

The peak season for fibre production is typically from September to April, with rates reaching their trough during the traditional summer lull in August.

“Approaching July and August it’s normal to have shutdowns [in the fibre market], but demand will be lower than normal, and until September we won’t see any improvement,” a nylon and caprolactam buyer said.

Demand throughout the second quarter in 2012 has been around 10-20% below levels in the second quarter of last year, according to market estimates.

“The fibre market is weaker than last year [in the second quarter]. Its 10-20% lower,” an ACN buyer said.

This is because of bearish macroeconomic conditions in Asia, which has dominated the global production of textiles, and in Europe resulting from the eurozone crisis.

'There is overcapacity and total market confusion. It is a free for all [and there is] a freefall in the price," a European PET importer said.

This has limited consumer purchasing power and suppressed buying interest from fibre producers. Some sources added that difficulties in accessing capital from banks, and cash flow problems, have further limited fibre production throughout 2012.

“We’re approaching the holiday season, and because of weak macroeconomics there’s less confidence. At the end of July [demand] will be lower,” an adipic acid producer said.

Because of the traditional low season, fibre demand is not expected to improve during July and August.

“Demand is weak everywhere. Automotive and fibres [markets] won’t improve until at least September because of the low season,” an adipic acid buyer said.

Some sources expect summer holiday outages in fibre markets to be more protracted in 2012 than is traditional, because of the weak demand.

“Fibre production is about 50%. One of our fibre producers is shutting down in August. They’ve never had a summer shutdown – this year they have one,” an R-PET flake producer which serves the fibre market said.

Poor fibre demand has squeezed margins in upstream chemical markets, with many producers further up the value chain considering cutting operating rates if they cannot improve profitability – particularly in the polyamide chain.

NF Trading halted production at one of its two 30,000 tonne/year adipic acid plants in the Ukraine in mid-December 2011. The plant was originally scheduled to come back on stream in March 2012, but continued low margins have led to it remaining shut. Production at the second plant was halted at the beginning of May 2012.

NF Trading will not restart either plant in the near future, because of low margins, a company source said.

European caprolactam producers said that if they are unsuccessful in restoring profitability in July, they will cut back operating rates. Some producers already have contingency plans in place to reduce operating rates to 60% of capacity in July.

“60% operating rates will be a consequence if we can’t recoup margins [in July],” a caprolactam producer said.

($1 = €0.80)

Additional reporting by Caroline Murray

By: Mark Victory
+44 208 652 3214

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