01 March 2013 16:14 [Source: ICIS news]
LONDON (ICIS)--European acrylonitrile (ACN) players have described the €55/tonne ($71/tonne) increase in the feedstock propylene March contract price as a “disaster” for the spot market, and there are concerns that the higher upstream costs will limit demand because of poor downstream markets, they said on Friday.
“I think it will be a disaster - I think that our main supplier will try to increase [ACN spot prices] above $2,000/tonne - the problem is the downstream is not in a better condition,” an ACN buyer said
The market predicted to be the most heavily affected by players is the downstream fibre industry.
“[The] propylene contract price was a surprise... I think demand will drop as a result, but when we look at the ACN price, we don't see an uptrend like propylene. Fibre [demand] is very weak and therefore we're not getting any fresh orders from parts of industry,” an ACN producer said.
Acrylic fibre producers said that with fibre prices currently around $2,500/tonne (€1,925/tonne) CIF (cost, insurance and freight) Europe that they would need ACN spot prices as low as $1,900/tonne CIF W (western) Europe in order to reach a workable margin.
Nevertheless, producers argue that they need spot prices of at least $2,000/tonne CIF W Europe to break even at current production costs, and are targeting prices of $2,050/tonne.
“We've got a cost increase of $70-80 that will have to be factored in,” an ACN producer said.
Weak margins and rising costs for producers helped push spot prices 20-22% higher in the thirteen weeks up to 25 February 2013.
The divide between buyers and sellers has caused a stalemate in the market, and the market is becoming increasingly illiquid.
“There's a conflict between the buyers and sellers. Producers are trying to push-up, but due to the fact prices are too high buyers aren't buying, it's a circle,” a trader said.
The majority of players in Europe see demand as weak because poor macroeconomic conditions have reduced consumer purchasing power. Downstream automotive and fibre end-use consumption is low, and the majority of players have not seen an increase in exports following the Lunar New Year holidays or the approach of the peak season, as had been expected.
“Propylene of course an issue. Demand is less than poor. No recovery since Lunar New Year. I would say we've peaked on ACN. The producers will be suffering a lot. Should be start of the season. It's quiet. Propylene could kill more of the demand, [it] will be tough. It's not an easy number to swallow,” a trader said.
Some ACN buyers are aiming to turn down their operating rates by as much as 70% in March and April because of weak demand.
“Propylene’s a bit of a disaster for ACN. Think the max they will pay is if they get $1,950/tonne - a lot [of buyers are] stepping out [of the market] because they can't afford $1,950/tonne,” a trader said.
The auto industry in Europe saw sales fall to 19-year lows in 2012. Just this week, US auto parts maker Federal Mogul announced that it is to close three of its European plants because of weak demand.
Anticipation of lower US propylene prices in March contracts and volatile exchange rates has led overseas buyers to move to the sidelines to avoid the risk of a moving cost base.
Several players feel that downstream demand is so low that ACN spot prices will have no impact on demand. This is making some sellers more entrenched in their price positions.
Coupled with this, some fibre producers are choosing to maintain high operating rates despite poor margins because of the cost of turning down plants.
“It's not the price level, it's the downstream demand. Acrylic fibre market is just not healthy enough. It's never good - if it [ACN spot prices] would drop $100/tonne we wouldn't see suddenly a buoyant acrylic fibre market,” a trader said.
Views on ACN demand were not unanimous and some sellers and some buyers said that downstream demand is healthy.
“Before they [fibre producers] get their crystal ball out - I dispute this thing about weak demand.... Maybe there’s a weak sentiment, and downstream they see some worrying things. But actual fibre in March is running well,” an ACN producer said.
Consumption in the acrylamide market and for specialty fibre and premium automotive applications remains high.
Additional reporting by Mark Yost
($1 = €0.77)
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