07 March 2013 15:51 [Source: ICIS news]
By Mark Victory
LONDON (ICIS)--Increased volatility in the euro/US dollar exchange rate is lowering overseas buying interest and causing caution across the petrochemicals complex, sources in multiple markets have confirmed in the past seven days.
Players in a wide range of markets, including the polyamide chain, acrylonitrile (ACN), recycled polyethylene terephthalate (R-PET) and virgin PET, methyl methacrylate (MMA), and mono ethylene glycol (MEG), have all voiced concerns on the impact of exchange rate movements on their individual industries.
The euro to US dollar exchange rate has become increasingly volatile since the start of 2013.
“[It went from] 1.37 [US dollar to the euro] to 1.30 in one week. It came out of nowhere, I thought we were going straight towards 1.40,” a PET buyer said.
This has limited exports of finished goods as overseas buyers are unwilling to purchase from Europe because of uncertainty over the true cost of materials when they land.
“The exchange rate uncertainty is still there and that's a risk for people that want to sell into Europe. In three weeks it has changed a lot ... this is not making a trader's life easy. So it is less attractive for sellers to export to Europe. Asia was tight in January and Feb. Everyone was fighting for cargo.
“Usually it takes two months for a vessel to arrive. At 1.30 [US dollar to the euro], Europe loses its attractiveness for potential exports and the shrink in the rate is a risk for Asian producers wanting to sell into Europe," an MMA producer said.
Overseas buyers are unwilling to take deliveries - which typically have lead times of up to eight weeks to Asia - amid uncertainty over the true cost when material lands as a result of volatile exchange rates.
“In one day it [the euro/US dollar exchange rate] can change 3-4 cents. It makes players more reluctant to buy,” and ACN buyer said.
Although some sources said that they factor in exchange rate movements, and hedge against them, volatility has risen sharply in 2013.
“Currency is one of our problems in the past year. We factor it in - I think it's something we have to get used to. I don't think it's going away. If you don't have hedging in place, it's of course a concern,” an ACN buyer said.
Traditionally, Europe ACN exports would rise following the end of the Lunar New Year holiday in Asia, as Asian players look to restock material. Nevertheless, players are yet to see a rise in exports so far in 2013.
Engineering plastics players have already noted a drop in year-to-date 2013 demand of up to 20% compared with the same period in 2012. Forecasts from other automotive markets bear this out, with estimates of a reduction in demand over the same period of around 15% in 2013.
Reduced overseas consumption as a result of volatile exchange rates is resulting in material previously earmarked for export remaining in Europe.
For example, European nylon 6 availability has been increasing because of imports from the Former Soviet Union (FSU).
Volatile exchange rates are also a problem for products where production and feedstock costs are in one currency and sales of the product in another.
For example, ACN spot prices are sold on a US dollar basis, but production costs are in euros, creating a fluctuating spread between the two, and an uncontrollable cost basis.
“Of course the exchange rate has a huge influence on the price. Propylene we get quotation in euros and [our] production costs are in euros - but sales of acrylo[nitrile] are always in US dollars. It's a huge influence, really a huge influence,” an ACN producer said.
In the benzene market, where the euro contract price is converted at an agreed exchange rate. An initial March European benzene contract was agreed at €1,054/tonne, up €14/tonne from the previous month, one buyer said on Thursday.
The contract was agreed on a US dollar concept of $1,380/tonne FOB (free on board) NWE (northwest Europe) and converted to the euro price at the agreed exchange rate of €1:$1.3093. While the settlement reflects a $28/tonne drop in US dollar terms in an increasingly bearish European market, the weak euro meant that the euro number moved up from February.
Shifting cost basis and long-lead times for exports is making forecasts of price movements increasingly difficult, and leading to buyer caution across the petrochemical complex.
“The exchange rate volatility is preventing any exports. If it were up to me I wouldn’t take the risk. For imports, we see it the same ... given the volatility and uncertain exchange rates, it’s gambling,” a R-PET flake producer said.
Additional reporting by Caroline Murray and Helena Strathearn
($1 = €0.77)
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|
Asian Chemical Connections