Feedstock cost pressure builds on Europe epoxy resin producers

20 July 2012 15:36  [Source: ICIS news]

LONDON (ICIS)--European epoxy resins and epichlorohydrin (ECH) producers are under mounting pressure because of high feedstock costs and low end-product sales prices, driving many to reduce operating rates and slash prices in an effort to maintain sales volumes, sources said on Friday.

"EU producers are under tremendous cost pressures and I believe it is a sign that something has to change - either on the raw material front or on pricing," one epoxy resins and ECH producer said in reaction to the news that Poland's Ciech is planning to close its subsidiary Zachem if it cannot sell it.

Ciech is open to offers for loss-making toluene di-isocyanate (TDI), ECH and epoxy resins unit Zachem and has said it may close the subsidiary if a buyer is not found.

"This confirms the difficult times for ECH producers, and the unsustainable situation as a result of current losses incurred by the industry," an ECH producer said.

"Further [raw material cost increases] would unfortunately only make things worse, and [this would] motivate our push for recovery in margins in the future," the producer added.

Epoxy resins are used in the manufacture of adhesives, coatings, paints and structural parts required by the automotive, aerospace and aircraft industries.

According to a paint producer, overall demand for epoxy resins in the second quarter of this year fell by 15%. From the automotive industry, demand was down by about 10% during the second quarter from last year. Decorative paint demand is down by about 20-25%, according to industry sources.

Most epoxy resins and ECH producers are running their plants at 70% operating rates and are planning to shut down for planned maintenances during the next three months to balance supply and demand.

Weak demand is not the only cause for concern, however. Renewed pressure from upstream benzene suppliers is making derivatives producers worried.

The European benzene market remained firm this week on bullish global prices and limited domestic availability, although prices eased off as US Gulf numbers faltered on previously short positions driving the upturn being covered.

"Without an increase in margins from where we are today I would expect others to also start to consider rationalisation," an epoxy resins producer concluded.

($1 = €0.81)

By: Janos Gal
+44 208 652 3214

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