FocusEurope ACN prices may recover in August, market predicts

16 July 2012 16:16  [Source: ICIS news]

LONDON (ICIS)--European acrylonitrile (ACN) spot prices have no further room to decrease and will recover in August, the majority of players expect.

Forecasts of price recovery follow severe price falls throughout the second quarter, resulting from poor macroeconomic conditions and weak export markets. Across the second quarter, ACN spot prices fell by $750–900/tonne (€615–738/tonne).

Last week ACN spot price ideas increased by $100/tonne at the bottom end of the range, to $1,500–1,600/tonne CIF (cost, insurance and freight) WE (west Europe).

This is the first time prices have increased at the low end of the range since 16 March 2012.

Despite the price rises, underlying ACN demand in Europe remains weak.

“Spot prices moved to $1,500/tonne on the back of restocking and speculation on expectations that [prices are] bottoming out. Underlying, though, it’s still weak,” an ACN trader said.

This is particularly the case in the downstream fibre market, where operating rates are as low as 50% of capacity – according to market estimates. Demand is not expected to increase until September because of the traditional low season for fibre production. The peak season for fibre production is typically from September to April, with rates reaching their trough during the traditional summer lull in August.

Nevertheless, fibre demand in June 2012 was estimated at 10–20% below July 2011 levels by market players.

Traditional end-user outages during August were expected to be protracted this year because of the weak demand and low margins.

In acrylonitrile-butadiene-styrene (ABS) – another key end-use market for ACN – demand is also weakening in anticipation of the seasonal summer holiday period in August. 

Despite no increase in underlying demand in Europe, consumption of ACN has increased in July. This is because of restocking and speculation.

Speculation in the market is predicated on expectations that prices have now reached their bottom. This is leading traders to stockpile material now while prices are low, in the hope of realising margins when the season begins in September.

“The bottom is reached, but fundamentals are unchanged. It’s moving on speculation,” a buyer said.

Low-priced material from eastern Europe, which had been increasing supply and placing downward pressure on western Europe, has disappeared from the market.

 “We’re not seeing product come in from eastern Europe – they had been pushing cheap material. Asia is starting to enquire again… In Europe the [ACN} market’s changing,” a producer said.

Concurrently, buying interest in Asia is increasing as a result of local tightness. Several Asian ACN producers have reduced operating rates to 70–80% of capacity in July because of poor margins. Tight supply in Asia pushed spot prices in the region $50/tonne higher at the top end, to $1,600–1,700/tonne CFR (cost and freight) NE (northeast) Asia, last week. Several traders said that the minimum spot offer is now at $1,700/tonne CFR NE ASIA

 In recent months, Russian and deep-sea cargoes from the US Gulf had pushed Asian ACN prices lower.

“With all the Russian cargoes sold out, and no other spot cargo available for July arrival, it looks like ACN prices may be on the rebound,” an Asian trader said.

Russian cargoes had been sold in Asia at around or below $1,500/tonne CFR NE Asia, at least $200/tonne lower than regional cargoes in Asia, traders said.

Asia is a major importer not only of European ACN, but also ACN derivatives such as acrylic fibre and ABS.

European buyers’ inventories are low as they destocked throughout the second quarter to mitigate the effects of any further downturn in general economic conditions, and held off purchases because of consistently falling prices. As a result, any tightness in European supply or increase in demand is having a larger proportionate effect on prices.

“Everyone had low stocks assuming that prices would go down. Bu they came to their lowest point… The price is $1,600/tonne for sure, just driven by speculation,” a European producer said.

With European demand increasing because of restocking and speculation, and Asian prices firming, European producers are unwilling to offer material at below $1,500/tonne CIF WE because of weak margins – which were eroded throughout the second quarter – and most are offering at $1,600/tonne CIF WE. As a result, price ideas in Europe are moving up.

“Spot prices are out of their bottom again. A lot of traders are active at the moment. Without us pushing prices went up quickly… [underlying] demand is still low, but buyers have to buy,” a European producer said.

Some producers said that they are aiming to reach spot prices of $1,900/tonne in August, which is where spot values need to reach to restore sufficient margins, they said.

 ($1 = €0.82)

 Additional reporting by Helen Yan

By: Mark Victory
+44 208 652 3214

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