04 January 2013 11:23 [Source: ICB]
The European phthalic anhydride (PA) market is likely to face challenges from both upstream and downstream in 2013 and this is set to continue over the next few years.
European PA players have been faced with high orthoxylene (OX) feedstock costs throughout 2012 - in particular, a record high in April 2012 - and as a result have struggled with squeezed margins.
Domestic Asian output adds to the length in EU PA flake supply
In mid-December PA spot prices were trading below the contract price level amid soft market conditions, with values in the €1,300s/tonne for liquid and in the €1,200s/tonne for flake - not much above the December OX contract price, which settled at €1,093/tonne FD NWE.
PA operating rates have been reduced for at least a few players in the fourth quarter of 2012, because of low demand and poor profitability.
In addition, Kemiplas's PA operations in eastern Europe have been idled during at least the second half 2012 for economic and market reasons. In mid-December, the company said that there were no plans to restart operations.
PA players said that they have not seen any real impact from this because supply in Europe is already plentiful and subdued demand is unlikely to recover in the short term.
Both buyers and sellers alike agree that the European PA market is structurally oversupplied and there is a need for consolidation, but it remains unclear whether this will take place in 2013 or later on.
The declining of one of the main downstream sectors, the plasticizer dioctyl phthalate (DOP), is one reason why PA supply is exceeding demand. DOP is likely to be completely phased out by February 2015 under Reach legislation unless an application for authorisation is made and granted before July 2013.
One PA producer said it has already diversified its PA portfolio away from DOP and is now producing other plasticizer alternatives, but it said that others still need to take action otherwise these players will disappear from the market.
Aside from legislation, poor macroeconomic conditions have also affected demand for PA, particularly in the downstream unsaturated polyester resin (UPR) sector, because heavy end-consumer outlets such as automotive have seen reduced consumer confidence and spending.
The UPR sector is strongly linked to GDP and players expect demand in this sector to remain challenging, largely flat, albeit with some slight improvement possible. This would most likely be around the second quarter when the UPR and plasticizer into construction is likely to enter its high season.
Any possible improvement, however, will also be largely dependent on economic conditions. Cautious sentiment in 2012 is expected to continue as one buyer said: "It is difficult to gauge PA demand - as there is minimum certainty for 2013."
Despite lower demand in 2012, PA liquid supply, however, has been kept relatively balanced in the second half of 2012 because of production cuts and turnarounds for some players.
The shift away from exporting product out of Europe to Asia because of the increase in domestic production in Asia has also added to the length in European PA flake supply.
PA availability is expected to remain good next year provided plants run reliably, particularly if demand remains subdued.
But, one producer said that while PA nameplate capacity is structurally long in theory it questioned whether PA operating rates will be high next year.
This will be dependent on how demand pans out and also on feedstock availability. OX supply has suffered from tightness in 2012 and there is some expectation that this could continue in 2013 if there are good export opportunities for OX to Asia, a pick-up in demand and production losses in Europe.
In mid-2012, Polynt had experienced a force majeure on its PA supplies in Italy because of OX shortages, and while there was no widespread limitation for PA production during 2012 one producer suggested that feedstock availability could be a limiting factor for overall PA supply in 2013, should OX remain tight.
Cost of and availability of raw material, along with how PA demand pans out - particularly for those involved in the downstream DOP market - will be critical in shaping the PA market and landscape in 2013 and beyond.
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