04 February 2013 16:25 [Source: ICIS news]
By Helena Strathearn
LONDON (ICIS)--First-quarter methyl methacrylate (MMA) contracts are expected to settle this week at a decrease, for the third quarter in a row, but a change in market trend is imminent, sources said on Monday.
Discussions have been slow, but around 70% of contracts have now been agreed, with contracts largely decreasing by €10-50/tonne ($14-68/tonne) or rolling over, depending on the base price. Feedback from buyers and sellers is so far pointing to an average of €20-30/tonne down from the fourth quarter.
Demand is seasonally low in the first quarter, and consumer confidence has been lacking amid economic uncertainty. Slow demand and poor visibility regarding February and March offtake have added to the downward pressure in the well-supplied market. However, producers continue to stress that they cannot afford to go any lower on margins.
End-users are less willing than they have been previously to spend if it can be avoided, but while buyers are emphatic that every derivative market is suffering, sellers remain encouraged by the way demand is going. “Demand has not been stellar but it’s not a disaster either,” a supplier said. Meanwhile, one buyer hopes its orders pick up, otherwise it will have to cut its production.
There is, however, a sense among players that the trend in the market will change in the coming weeks.
With spring on the way, bringing with it increased construction activity, the MMA industry is approaching its high season. Upstream acetone contract and spot prices have moved up, the propylene market is tighter, prices are firming in that sector and producers remain keen to claw back margin lost through 2012.
Market participants are curious to see whether MMA spot prices will be influenced by higher acetone spot prices, which have spiked in the past few weeks, although for now MMA prices remain steady, with spot MMA truckloads selling at €1,520/tonne FD (free delivered) NWE (northwest Europe).
The concern for producers lies with margins. January MMA contract prices fell for the fourth consecutive month, on soft demand and ample availability.
With a higher February acetone price, producers could soon face record-high production costs. “Acetone, again, is the last nail in the coffin of producers’ margins,” another producer said. Suppliers will target price hikes in February. When prices will go up, however, and by how much is anybody’s guess.
With US and European acetone prices firming, producers are nervous about the potential impact of higher raw material costs. “Higher acetone prices are being targeted in the US. Will it happen here to the same extent? If that happens, that really will be a killer blow for producers here. These are nervous times, but at least we see volumes picking up,” the producer said.
In Asia, several major producers have indicated they are considering implementing a $100/tonne price hike in March in view of rising raw material costs. It is thought they may aim to achieve a minimum of at least a $50/tonne increment.
In the US, nominations of 6 cents/lb and 11 cents/lb are expected to find traction, although there will be some pushback from buyers.
An initial February MMA price target has been announced by one European producer: “We need at least a €100/tonne increase in February [contracts]. The next move is up. There's no other way around it.”
Slight decreases in acetone and propylene in January were counterbalanced by a €30/tonne price rise in raw material methanol first-quarter contracts.
A buyer said: “We are facing a very bad market. Demand hasn't picked up. The market is slow. The demand is not there so this is bad for the buyers. We can’t pass on increases, I don't see anyway out for the time-being. It’s not an easy situation.”
“There is plenty of product sloshing around,” another buyer said.
However, one consumer said: “Second-quarter prices should move up. My view is that the market [price] has reached the bottom.”
The sector has seen a sluggish return from the holidays, but orders appear to be picking up for February and March and a producer said there is a bit more confidence in the industry. “My feeling is that the market will firm up a bit as we go through the quarter,” it said.
“This has been a testing quarter on margins,” the producer added. “We’re seeing a changing picture. Things are on the turn.”
Nearly all MMA is polymerised to make homopolymers and copolymers, with the largest application being the casting, moulding or extrusion of polymethyl methacrylate (PMMA) or modified polymers. PMMA is a transparent thermoplastic, often used as a lighter, shatter-resistant alternative to glass.
($1 = €0.73)
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