Early April Europe ADA contracts settle, buy/sell divide remains

17 April 2013 23:59  [Source: ICIS news]

By Mark Victory

LONDON (ICIS)--Early European adipic acid (ADA) April contract price settlements have been agreed at a rollover to an increase of €50/tonne ($66/tonne), depending on starting point, buyers and sellers said on Wednesday.

Nevertheless, contract negotiations are ongoing and several buyers continue to target price decreases because of a €62/tonne fall in the upstream April benzene contract price, and weak demand.

Those buyers that have settled at an increase in April did not see price rises in March contracts, they said.

Producers have been targeting price increases to restore margins lost against benzene since mid-2011. Despite falling €62/tonne in April compared with March, the European benzene contract price has increased by €158/tonne between June 2011 and April 2013.

Between June 2011 and March 2013, adipic acid contract prices have fallen by €225-260/tonne because of weak demand and oversupply. ADA producers argue that there is tightness caused by lower production rates and maintenance at BASF’s Ludwigshafen plant in Germany.

Production at one of the site’s ADA lines has been suspended until June, a company source previously confirmed. The maintenance has taken approximately 25% of the plant’s nameplate capacity of 260,000 tonnes/year off line. Some producers further argue that demand is strengthening as consumers ensure material.

“[We’re seeing] a little more demand - but maybe there's an expectation that the material can't be longer than now. Sometimes you buy with your stomach instead of your head,” an adipic producer said.

Producers further argue that with benzene spot prices rising in spite of weak fundamentals, any feedstock cost advantage in April is likely to be short-term.

Buyers argue that despite the BASF outage the market remains in oversupply. They added that their own margins are weak and they need to recoup some of the benzene cost fall in April.

Despite the second quarter traditionally being the start of the peak-season for the downstream polyurethane (PU) shoe sole and automotive businesses, there has been no uptick in consumption so far this year.

Automotive demand is weak because poor macroeconomic conditions have limited consumer purchasing power. Demand from this sector has been estimated at 10% lower in April 2013 than in April 2012, and flat with March.

Demand from  PU producers selling in to the shoe sole sector is weak because limited availability of key raw material pure methyl di-p-phenylene (MDI) has meant that they cannot produce at full rates.

This in turn has limited off-take of ADA. Although nylon 6,6 is a key downstream market for ADA, most nylon 6,6 players agree contracts on a formula basis, with freely-negotiated monthly contracts predominantly representing PU players connected to the shoe-sole sector.

Several ADA buyers and sellers said that tighter supply and weak demand are counterbalancing each other, leading to an overall balance in the market.

“[We] haven't seen tightness, I would say a balanced market. For sure tighter on BASF - but is it tight? I don't see it that way. Suppliers are willing to sell and have the capacity available. I would definitely not call it tight at the moment,” an ADA buyer said.

They added that the push for price increases from producers and decreases from buyers will likely lead to a rollover in April contract prices, albeit within a narrowing range.

“There's a spread in the market. If you find supply side saying increases it's correct, at low side that's true. If you here demand side saying a decrease, that's also correct at the high-end,” an ADA producer said.

($1 = €0.76)


By: Mark Victory
+44 208 652 3214



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