FocusEpoxy resins expansions to lengthen European market

08 August 2012 12:07  [Source: ICIS news]

ConstructionLONDON (ICIS)--Upcoming epoxy resins capacity expansions will lengthen the already oversupplied European market and possibly drive prices down, sources said this week.

Two major plant expansions are expected to be finalised in October, one of which is Dow's Stade facility in Germany and the other is Jana's Jubail plant in Saudi Arabia.

Dow will increase the plant's annual nameplate capacity by 30,000 tonnes/year, while Jana will double the unit's capacity to 120,000 tonnes/year.

Current total European epoxy resins output is about 375,000 tonnes/year.

Some sources said that the expansions are probably happening at the worst time because the market is already long and it is difficult to sell epoxy resins.

"The expansions will keep prices down and make the market longer, but at the same time it is good to have newer, more efficient plants," a buyer said.

A source at Dow said that it is a global company and the additional epoxy resins could be sold in other markets if it could not find buyers in Europe.

Both projects were approved at a time when epoxy resins demand in Europe was strong and prices were much higher. However, during the last year prices have declined and demand has dropped significantly.

In June 2011, liquid epoxy resin (LER) contract prices were at €3,000-3,050/tonne FD (free delivered) NWE (northwest Europe), but the current range is €2,410-2,450/tonne FD NWE. Over the same period, feedstock benzene prices have gone up from €834/tonne FOB NWE to €1,061/tonne FOB NWE.

Industry sources estimate that so far this year demand for bisphenol A (BPA) from the epoxy resins sector has fallen by up to 25%, and demand for epoxy resins from the coatings, industrial and decorative paint industries is down by about 20-25% compared with the same period last year.

Statistics provide little cause for optimism, either. Construction output in May decreased by 6.9% in the 27-member EU, and by 8.4% in the eurozone on a year-on-year basis, statistics agency Eurostat said. New car registrations in the EU fell by 6.8% year on year to 6,644,829 in the first half of 2012, data from the European Automobile Manufacturers’ Association shows.

The construction and automotive sectors are two of the most important downstream industries for the epoxy resins sector. 

To balance a long market, most producers have reduced production and four producers will shut down at different times for annual maintenance during August, September and October.

Currently, most epoxy resins plants are operating at a 60-70% utilisation rate. Feedstock epichlorohydrin (ECH) plants are operating at about 70%, while co-feedstock BPA plants are at 50-60%.

If weak derivative demand was not enough for the market to deal with, high feedstock costs are also pressuring the market.

The European benzene contract price for August went up by €108/tonne from the previous month, while propylene increased by €120/tonne from July.

Because August is one of the quietest months of the year, derivative producers have struggled to pass on the increases as most players are on holiday and have shut down for several weeks.

Epoxy resins, BPA and ECH sellers are now hoping to pass on the feedstock cost increases in late August or in September.

Producer Momentive announced that it will increase the price of LER and solid epoxy resins (SER) in Europe, the Middle East and Africa by €130-€150/tonne from 15 August or as contracts allow. The pricing adjustment is driven by increases in the cost of key raw materials, including benzene, propylene and acetone.

Czech Republic producer Spolchemie and two other producers announced increases of €50-100/tonne for LER and SER effective from 1 August, or as contract terms allow. This is to improve unsustainably low margins, as well as to cover the significant raw material cost increases.

Buyers expect difficult discussions in September. They will try to resist any increases because demand is weak and supply is plentiful. However, producers said that they will raise prices regardless of what buyers want because margins have become unsustainable.

"Considering the bad evolution of feedstock prices since last year, we stand by the absolute need to recover margins in Europe in order to maintain a sustainable number of production units in operation," an ECH producer said.

($1 = €0.81)

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By: Janos Gal
+44 208 652 3214

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