OUTLOOK ’13: US MMA, epoxy markets sparking guarded optimism

02 January 2013 17:15  [Source: ICIS news]

HOUSTON (ICIS)--The US methyl methacrylate (MMA) and epoxy resins markets have inspired some guarded optimism for 2013.

“We’re expecting a strong start to 2013,” an MMA buyer said. “We’re hoping it matches the strong start we had in 2012.”

Most of the optimism is being fuelled by speculation that construction projects will start in the regions hit by Hurricane Sandy.

Buyers and producers expect that new construction will create demand for architectural and interior coatings, which are key markets for MMA and epoxy resins.

A strong boost to demand will be needed for prices on epoxy and MMA to increase, which producers say is necessary because their margins have been eroded in the fourth quarter of 2012.

“The cost picture continues to weaken,” an epoxy resins producer said. “Our margins are effectively zero.”

Margin pressure is more of a concern for the epoxy resins market than the MMA market, mostly because of benzene.

With US benzene contract prices at record highs, the feedstock pressure on epoxy resins is immense.

However, continued competition from overseas producers and importers has weakened efforts of US producers to raise prices.

“If US producers go through with big increases in January, the overseas guys will stay steady or go up just slightly,” a trader said. “They’ll be happy to gain more market share.”

Epoxy resins buyers agreed, adding that they will look to keep imported material steady relative to their current purchasing portfolios.

Market sources expected this to remain a key tension in the epoxy resins market for 2013.

US producers said that Asian and European benzene was unlikely to increase enough to make US product cost-advantaged, and would likely stay low enough to make US material cost-disadvantaged.

This would continue to push US buyers to keep imported material a key part of their portfolio.

Import supply issues are not expected to pose a challenge, with upstream phenol-acetone capacity increasing in Asia and strong demand in the US keeping Asian epoxy resins operating rates high enough to export material.

The record-high benzene costs will also affect MMA through its key feedstock, acetone.

With benzene prices high, production of acetone and its co-product, phenol, is expected to remain low.

The low production rates will keep phenol supply balanced but are expected to make acetone supply tight.

Tight acetone supply is expected to push contract prices higher for even the largest customers, MMA producers.

“It doesn’t make sense for the US to have the tightest market and the cheapest prices,” an acetone producer said. “If we had material we’d rather export it than sell it domestically.”

Sources in the MMA market said they expect they will see increased prices in 2013 based on the higher acetone.

In November and December, US MMA producers nominated cumulative price increases of 4 cents/lb ($88/tonne, €67/tonne), 9 cents/lb and 10 cents/lb, respectively.

However, US contract prices increased by 3.5-4.0 cents/lb during those two months, sources said.

“I think pent-up price increase nominations from previous months will be implemented in January,” an MMA producer said. “Producers can’t continue to eat cost increases.”

Demand from the plastics side of the MMA market is expected to stay steady or weaken slightly, depending mostly on consumer spending ability.

“We will see numbers similar to 2012,” an MMA buyer said. “Not much more than GDP growth or slightly less than GDP growth.”

Sources said that consumer spending and the general economy will be highly dependent on what happens with policy in Washington.

“What they’re doing in Washington is keeping everything in limbo,” a buyer said. “No one will want to take risks if they keep stalling.”

($1 = €0.76)

By: John Dietrich

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