OUTLOOK '13: Europe MA market eyes feedstock costs, demand

31 December 2012 11:30  [Source: ICIS news]

By Heidi Finch

LONDON (ICIS)--European maleic anhydride (MA) players remain cautious about high and volatile feedstock costs and their effect on MA price evolution and production in 2013, particularly in view of demand uncertainty.

European MA contract prices have fluctuated significantly during 2012, reflecting heightened volatility in feedstock prices, particularly n-butane, which is the main feedstock used in Europe. 

In the fourth quarter of 2012, MA contract prices were agreed up by €100-130/tonne ($132-171/tonne) on average, taking values to €1,670-1,760/tonne FD (free delivered) NWE (northwest Europe), driven by intensified cost pressure during the third quarter.

Buyers accepted a sizeable increase in MA contract prices in the fourth quarter from a feedstock perspective, but had refused to accept larger proposed hikes of €150-200/tonne, stating that this was not justified amid subdued demand and good availability.

MA producers, however, maintain that the increases seen in the fourth quarter were not sufficient and that price increases in the first quarter of 2013 are likely to be necessary in order to recoup lost margins, unless there were to be some significant feedstock relief in the meantime.

However, sellers are yet to disclose any firm targets on this, as they continue to monitor feedstock and demand developments.

N-butane costs largely follow crude oil movements, and if crude oil costs remain at a robust level, then n-butane costs are likely to be supported by this. 

While n-butane remains the main feedstock used in MA production in Europe, benzene is also used by a few players and has been particularly high-priced and volatile this year, which has been particularly challenging for MA players utilise the material as a feedstock.

Zaklady Azotowe Kedzierzyn’s MA production in Poland has been taken off line this year for economic reasons as a result of high benzene costs and lack of profitability. 

Another producer, who has the flexibility to produce MA using both n-butane and benzene feedstock, said it is currently considering its options to move away from benzene feedstock altogether, based on the speculation that benzene costs are likely to remain high.

The same source said it would continue producing MA using benzene feedstock, if its customers were prepared to pay a premium to help fund the higher costs, otherwise it believes that MA production based on benzene is likely to disappear out of the European market.

One buyer said it remains unconcerned by the possible idling of European benzene based MA production in the short term. This is because it only represents a small proportion of the European MA production and MA demand into the downstream unsaturated polyester resin (UPR) sector remains subdued, due to ongoing poor macroeconomic conditions.

Kemiplas’s MA facility in Slovenia has also been idled during 2012 for market and economic reasons, although it has a different feedstock than other market players, as it produces MA from PA wastewater. There were, however, no reports of any supply concerns because of this idled plant – thought to be because it only has a limited capacity in relation to the main market players.

Liquid MA availability is widely described as good in Europe, because of the mix of strong domestic and imported product supplies. Sasol-Huntsman’s 45,000 tonne/year expansion at its Moers facility, in Germany, which took place in the first half of 2012 and raised its nameplate capacity up to 105,000 tonnes/year, has also improved the European supply situation, along with the subdued nature of MA demand into the main UPR sector during 2012.

The structural set-up of the European MA market, however, meaning that the reliance on two main liquid suppliers means any plant reliability issues could also tighten the market, if demand picks up in 2013. This is particularly the case if players continue to keep stock levels low for economic reasons-which mean that there is no buffer in the value chain, should there be any plant reliability issues.

In contrast to liquid MA, flake MA supply has been limited in Europe in 2012, particularly in the second half of the year, because of a dearth of imports in a market which is structurally dependent on imports to supplement its domestic production.

However, the MA flake supply situation is likely to improve in 2013, with Sasol-Huntsman planning to increase the flexibility at its MA production in Germany by bringing a second flake pastillisation facility on line in the early part of the first quarter of 2013. Sasol Hunstman will double their flake pastillisation capacity to 20,000 tonnes/year, although the overall nameplate capacity for MA will remain unchanged at 105,000 tonnes/year.

The company will continue to focus on its core liquid business, particularly if UPR demand picks up in 2013. Otherwise, it will primarily use the second flake pastillisation unit for export purposes to cover any shortfall in the European market.

In terms of demand expectations, players stressed how it is difficult to gauge how demand will pan out in 2013, because a lot will depend on what will happen to the global economy and the eurozone in particular.

The main downstream UPR sector is expected to strongly mirror the wider economic situation, leading some to suggest that if the economy recovers in 2013, there will be the most recovery potential in the UPR sector, particularly in the Mediterranean. This is the sector and region which has been most affected by the poor economic climate.

Sellers are hopeful that some restocking activity is likely to take place in January 2013, as players need to build up some inventories once they restart downstream operations after the Christmas and New Year period.

Other players, however, expect a more modest and slow start to 2013, similar to that seen at the end of 2012, if the economic climate remains fragile and continues to limit visibility. On top of this, consumption into the main downstream UPR sector is likely to remain flat and subdued in the first quarter of 2013 amid ongoing low seasonality. The UPR sector, however, traditionally picks up in the second quarter of the year – although it remains to be seen if this is the case in 2013, depending on the economic climate.

One supplier suggested that, while it expects to see only modest demand from the UPR sector in 2013, it considers that there is likely to be more potential in demand from other sectors such as pharmaceutical and cosmetics, which are less affected by economic and seasonal fluctuations than the UPR sector.

Demand expectations for 2013 are likely to be fairly similar to that seen in 2012, unless there were to be a significant change in the economic climate, but production is likely to be subject to more change and adjustment, if feedstocks remain high and demand in Europe does not pick up.

($1 = €0.76)


By: Heidi Finch
+44 20 8652 3214



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