27 July 2012 00:00 [Source: ICB]
European producers of epoxy resins and epichlorohydrin (ECH) are under mounting pressure from 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. "EU producers are under tremendous cost pressures," one said.
The producer pointed to the difficult choice facing Poland's Ciech, which has said it could close loss-making toluene di-isocyanate (TDI), ECH and epoxy resins unit Zachem if a buyer cannot be found. "I believe it is a sign that something has to change - either on the raw-material front or on pricing," he said.
Another producer said: "This confirms the difficult times for ECH producers, and the unsustainable situation as a result of current losses incurred by the industry. Further [raw-material cost increases] would unfortunately only make things worse and motivate our push for recovery in margins in the future."
Epoxy resins are used in the manufacture of adhesives, coatings, paints and structural parts required by the automotive, aerospace and aircraft industries.
According to one paint producer, overall demand for epoxy resins in the second quarter of this year fell by 15%. From the automotive industry, demand during the second quarter was down by about 10% from one year ago. Decorative paint demand is down by about 20-25%, industry sources said.
Most epoxy resins and ECH producers are running their plants at 70% operating rates and are planning to shut down for planned maintenance during the next three months to balance supply and demand.
But weak demand is not the only cause for concern because renewed pressure from upstream benzene suppliers is worrying derivatives producers.
The European benzene market remained firm during the week ending on July 20, with bullish global prices and limited domestic availability, although prices eased off as US Gulf numbers faltered on the covering of the previously short positions that were driving the upturn.
One epoxy resins producer showed his pessimism, saying: "Without an increase in margins from where we are today, I would expect others to also start to consider rationalization."
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