Price and market trends: Deal terms shorten for Europe VAM

04 January 2013 11:23  [Source: ICB]

Participants in the European acetyls markets have been reluctant to look too far into 2013, saying much depends on macroeconomic developments that cannot be predicted with any confidence. The only certainty at the end of 2012 was that contract pricing terms for acetic acid and vinyl acetate monomer (VAM) are becoming shorter.

The past year has seen unprecedented volatility in upstream costs for VAM, with the ethylene contract falling by €120/tonne ($159/tonne) in June and a record €170/tonne in July, only to rise by €140/tonne in August and by a further €125/tonne in September.

The impact was seen clearly on VAM, with monthly contract prices falling by €60/tonne in July and rising by €35-45/tonne in September.

Quarterly contract pricing had been losing popularity even before 2012, particularly among VAM producers, and monthly contract price assessments for both acetic acid and VAM were introduced by ICIS in March 2012.

While increased upstream price volatility was not welcomed by either side of the market, VAM producers were absorbing the greatest impact, as they could not pass the cost changes onto buyers until the end of the quarter.

Some buyers also expressed dissatisfaction with a system that did not allow for the majority of contracts to be negotiated until the final month of the quarter. In some cases, prices were not concluded until early in the following quarter.

The extreme volatility recorded for ethylene prices during the summer of 2012 encouraged a significant number of market participants to move from quarterly to monthly contract pricing, effective either from the fourth quarter of 2012 or from the beginning of 2013.

In contrast to the retroactively priced quarterly contracts, monthly prices are usually settled in the first week of the month, or even in the last week of the preceding month.

But relative stability in the acetic acid market in 2012 has led to less interest in monthly contracts.

A producer noted that restocking activity will drive up demand for acetyls in January, but accepted that underlying sentiment is weak. The producer said it expected the first half of 2013 to be broadly similar to the second half of 2012.

A reseller suggested production problems in upstream methanol could tighten acetic acid availability in early 2013, which might exert upward pressure on prices.

In contrast, a buyer said that the well-supplied market in December meant there was potential for further price decreases in January. Another buyer concurred, saying it expects January to be bleak.

A reseller said it hopes to take advantage of buyers' need to replenish inventories in January to reverse December price decreases.

A buyer noted demand for VAM in December was lower year on year, and emphasised its very thin margins. It also highlighted a lot of competition on the export markets for derivative products, on lower ethylene feedstock costs in other regions. It will therefore press for lower VAM prices in early 2013.

Author: Sam Weatherlake

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