Price and market trends: Volatility the leading concern at EPCA for European chemical producers

19 October 2012 09:51  [Source: ICB]

Volatility in feedstock prices was the leading concern for delegates at the 46th annual European Petrochemical Association (EPCA) meeting in Budapest, Hungary, which ran from 6-10 October.

Jens Holger Nielsen Tom Gordon

 Tom Gordon

Samskip's Jens Holger Nielsen outlined the EPCA supply chain program committee's efficiency ideas

The cautious optimism seen at EPCA in 2011 has given way to outright caution this year, with many players expressing anxiety about margins.

One European olefins producer said the mood at the conference was "not good", with "people unwilling to commit to anything because of all the uncertainties next year."

A buyer of phenol and acetone said: "I don't want a high price and I don't want a low price. All I want is a price that I can live with and make me some money."

A propylene oxide (PO) buyer said: "All we want is stability. Nobody cares about the level - the market will adjust to the level."

MARGIN SQUEEZE

Lack of profitability has become a serious problem for petrochemical producers, owing to the difficulty of passing on high feedstock costs at a time of low demand.

One monopropylene glycol (MPG) producer said: "It is not an easy place to be. It is a rollercoaster from feast to famine and then back again."

MPG producers have not been able to pass on feedstock propylene increases in recent months, and are hoping that a boost in seasonal demand will materialise soon to help support some upward price movement.

Producers of acrylic acid (AA) and acrylate esters have also been struggling with high propylene costs this year.

"The killer this year has been raw materials," said one producer, noting that its focus in 2013 would be on improving margins.

NO EQUAL PAIN

However, not everyone believed the pain was being shared equally between buyers and sellers.

"We think producers are milking the high-cost situation. We worry about Europe long-term - we all have a choice not to invest in Europe," said one ethylene derivatives consumer.

EU PropyleneAnother effect of increased volatility is the move from longer contract periods to shorter ones.

One example of this is the growing popularity of monthly contract prices for vinyl acetate monomer (VAM), in place of the established quarterly contract prices.

Market sentiment regarding the fourth quarter was gently bearish, with the approach of the Christmas holidays likely to discourage consumers from building stocks.

However, the prevalence of hand-to-mouth buying throughout the year means that there will probably be only limited destocking towards the end of the quarter.

While no significant changes are anticipated for the remainder of 2012, participants in the olefins markets indicated that a heavy turnaround schedule is likely to keep prices high during the first half of 2013.

BENZENE PRICING

A key talking point among aromatics players was the future of European benzene pricing and its continued impact on downstream pricing.

Since the beginning of 2012, the benzene market has been on an upward path with availability restrictions due to tight pyrolisis gasoline (pygas) supply driving numbers up.

"Benzene will continue to behave as it did this year," said a styrene trader. "If crude stays high this will be reflected in benzene and styrene pricing."

The closure of producer INEOS's styrene monomer (SM) and polystyrene (PS) units at Marl, Germany this month, as well as several downstream units coming online in the Middle East and Egypt, will keep European styrene supply limited in 2013.

"Material will be diverted from Europe to these sites," one trader said. "We will also see ARA [Amsterdam, Rotterdam, Antwerp] cargo leave the region, which will keep Europe tight."

However, one expandable polystyrene (EPS) producer pointed out that high styrene prices do not mean high profits for suppliers.

"With the type of money involved when costs are this high, there are always credit risk issues," said the source. "Of course, high prices mean that the end-use markets like automotive and construction will lead buyers to look at alternatives like polyurethanes [PU] and mineral fibres."

EO SUPPLY TO TIGHTEN

In the EO market, there are expectations that supply will tighten in the next few years, and a source at Shell said the company was considering whether to expand EO production capacity at its Moerdijk site in the Netherlands.

A major EO producer had said that European supply would get "shorter and shorter in the coming years," and would be particularly tight in 2013.

The Shell source discussed the proposed expansion project in Moerdijk, saying that it was still in the "exploratory" stage, and that the company was looking for interested parties willing to co-locate.

Short-term growth prospects for nylon are seen as weak, with most players expecting a fall in consumption in 2013.

Adipic acid (ADA) demand is not expected to improve before the second quarter of 2013, on account of weak automotive demand caused by bearish macroeconomic conditions and a downturn in Chinese growth.

In the caprolactam market, expectations for 2013 demand are mixed. Some players are forecasting a recovery in the second half of the year based on expectations of further monetary stimulus packages in Asia and the US, which will bolster exports.

European nylon (or polyamide) 6,6 sources expect downstream engineering plastic demand in 2013 to be up to 10% below 2012 levels globally, while average expectations are for demand to be around 5% below 2012 levels because of weak macroeconomic conditions both in Europe and Asia.

Many players in other petrochemical markets expect consumption levels in 2013 to be approximately in line with 2012 volumes.

US SHALE GAS

The impact of shale gas in the US was addressed by Tom Crotty, president of the EPCA and CEO of INEOS Olefins & Polymers, in his opening speech to the conference.

Shale gas developments in the US have led to a "truly astonishing renaissance" in US petrochemicals that will have ramifications around the world, Crotty said.

The development of shale gas has led to a shift in global competitiveness that has pushed the US right up the scale of competitive industries, he said.

Crotty said that increased feedstock availability in the US has led to no fewer than 11 ethylene expansions now announced and a further seven being considered.

INEOS plans to ship US shale-derived ethane to its European operations under a deal unveiled in the last week of September.

  • Contributions by Nel Weddle, Julia Meehan, Heidi Finch, Mark Victory, Truong Mellor and Helena Strathearn

By: Samuel Weatherlake
+44 20 8652 3214



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