FocusPropylene derivatives AA, MMA face August hikes

06 August 2012 11:32  [Source: ICIS news]

LONDON (ICIS)--Propylene derivatives acrylic acid (AA), acrylate esters and methyl methacrylate (MMA) have seen prices see-saw this year, driven by feedstock costs, and the markets now face August increases despite quiet summer demand.

The €120/tonne ($148/tonne) rise in the August propylene contract is going to add pressure to downstream producers’ squeezed margins, making price hikes in the AA and MMA sectors likely this month.

European MMA, AA, and acrylate esters producers will be looking for recognition of the impact of raw material price increases on production costs.

The extent of the price rises in upstream markets has caught players along the supply chain by surprise, particularly as August business is slower. August contract discussions are expected to be difficult, as some buyers have been anticipating slight decreases for the quiet month. Producers had not expected to propose increases in August, but said costs would need to be recovered.

“We will look for support and recognition for the impact of the propylene increase on our business,” one producer said.

In the MMA market, producers are keeping a close eye on the cost of raw materials. Feedstock methanol is priced at a four-year high, ammonia prices remain high at $600/tonne FOB (free on board) Yuzhny, while MMA values are below December prices. Despite the triple-digit decrease in the July acetone contract, acetone prices are at a high level.

Another producer said: “Producers are approaching new historic records for production costs. Some buyers are asking for decreases [for August]. It’s rare when the two parties have such different aims. Somehow, we have to find a solution.”

The producer added that it is rare to have all three [acetone, ammonia and methanol] raw materials at a peak.

Although it is too early for clear August pricing targets in the AA market, initial indications point to €20-100/tonne increases - depending on source - to maintain margins, and in recognition of low August demand levels. AA producers are speaking of the need to implement price rises in August to absorb the cost of propylene.

“The reality is that we will be pushing for a significant increase,” one AA producer said. “It’s what needs to be done in terms of propylene.”

Feedstock cost pressures are also likely to push European acrylate esters prices up this month, but, again, lower summer demand is expected to temper the extent of any hikes.

Buying interest is typically subdued in August as participants across Europe are on summer holiday, but sentiment has been further dampened by weak macroeconomic conditions, and this is likely to result in more moderate increases for the balanced-to-long esters sector. Negotiations are likely to take longer than usual, owing to holiday absences, and are expected to conclude by mid-to-late August.

Clearer pricing targets for all three markets are expected to emerge this week.

In the MMA sector, second-quarter demand was slower than usual, and third-quarter buying interest tapered off as the European summer holiday season approached. While the market should have been enjoying peak season demand in the second quarter, buying interest from the coatings sector was patchy, whereas offtake from the polymethyl methacrylate (PMMA) industry has been weak.

End-use markets, such as the automotive and construction sectors, have been impacted by macroeconomic concerns, and third-quarter European PMMA contracts are set to decrease as the industry failed to pick up in the second quarter.

However, one MMA producer said the second quarter had seen unexpectedly good sales in Europe, and said a reduction of imports may have contributed to the healthy order book volumes. Nevertheless, many consumers said offtake this year has been below 2011 levels.

MMA prices came down this quarter, following the €136/tonne decrease in the July feedstock acetone contract, and amid subdued demand. Now, some players are wondering whether the seasonally softer fourth quarter will incur price rises.

Feedstock contract prices largely increased in the first quarter, with both propylene and acetone reaching record highs in April, by which point the propylene contract price had moved up by €250/tonne since January. The May propylene contract price, however, came down by €15/tonne to €1,230/tonne.

European propylene contract prices for July went down by €170/tonne to €935/tonne FD (free delivered) NWE (northwest Europe), marking a record-high adjustment since monthly contract pricing began in January 2009.

Second-quarter European MMA prices subsequently rose to €1,850-1,890/tonne FD NWE because of raw material costs and improved demand in a balanced-to-tight market, but third-quarter European MMA prices fell to €1,710-1,760/tonne FD NWE because of reduced feedstock costs and softer demand.

August MMA prices may see a double-digit increase. Producers said further hikes may be necessary next month, especially if demand picks up on restocking.

One producer said: “I’m still thinking September could be quite strong and that’s going to come when producers will be looking for increases.”

“I think September will be the most exciting September for years. The volatility on everything ... it’s quite something,” another MMA producer said.

Nearly all MMA is polymerised to make homopolymers and copolymers, with the largest application being the casting, moulding or extrusion of PMMA or modified polymers. PMMA is a transparent thermoplastic, often used as a lighter, shatter-resistant alternative to glass.

Acrylic acid and its esters readily combine with themselves or other monomers, forming homopolymers or copolymers which are used in the manufacture of various plastics, coatings, adhesives, elastomers, as well as floor polishes, and paints.

($1 = €0.81)

By: Helena Strathearn
+44 208 652 3214

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