Europe ECH producers express concern over low margins

27 November 2012 15:50  [Source: ICIS news]

LONDON (ICIS)--European epichlorohydrin (ECH) producers have expressed concern over low margins ahead of the December contract talks and said there is a need to increase prices if the industry is to return to profitability, sources said on Tuesday.

However, higher contract prices are difficult to achieve in the current macroeconomic climate and so December ECH contracts are likely to roll over, if not fall slightly, sources said.

It is unlikely producers can increase prices in the next couple of months because demand is weak and the market is oversupplied, unless feedstock costs increase.

November ECH contract prices are at €1,620-1,650/tonne ($2,104-2,143/tonne) free delivered (FD) northwest Europe (NWE).

One buyer said that if propylene prices decline in December, there is potential for an ECH price drop. This was contested by one producer that said it will not reduce prices whatever happens to feedstock costs because it needs to recover margins.

The producer added that if the situation in the market remains unchanged next year, some restructuring will be inevitable and smaller players could be badly hit.

"If we copy and paste 2012 into 2013, the industry is going to be in big trouble," the producer said. It added that with low margins and high feedstock costs, it has been under a lot of pressure to increase prices, but it was not possible because demand is so poor.

It said that because the spread between the price of propylene and the price of ECH has dropped from €725/tonne in January 2011 to €515/tonne in November this year, it desperately needs to increase prices to recover margins.

A second producer said it was hoping prices would roll over in December as it could not afford to lower prices.

"Demand is poor and the market is long. I am afraid that December [demand] will be worse but hopefully prices will roll over," the second producer said.

One buyer said availability was not a problem and another said it has not yet started negotiations.

($1 = €0.77)

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By: Janos Gal
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