ASC Supplement 2013: US markets show mixed picture

26 April 2013 12:53  [Source: ICB]

Adhesives and sealants producers buy-in a wide range of materials, leaving them exposed to market volatility. ICIS editors give the outlook for the more important purchases

Acrylates sustain adhesives growth
Acrylate esters Larry Terry

Demand for US acrylates is expected to closely track demand for derivative pressure-sensitive adhesives for the remainder of 2013, industry sources assert.

Anticipated growth of nearly 5% in the pressure-sensitive adhesives industry out-paces previous growth of 2-3%/year from 2009 to 2012, a market participant says. Acrylics demand will track that growth.

In contrast, aromatics/solvent-based adhesives will probably remain flat, the source says, because demand for products with high-performance applications will lag behind a growing interest in consumer goods.

Acrylates rose in price during the first quarter of 2013, but only on upstream chemical-grade propylene (CGP) pressure, which has since weakened amid a soft and oversupplied acrylates market.

Long acrylates supply will keep its derivative adhesives market well-supplied, sources say. There is, however, a slow but sure migration away from "heritage" technologies such as casein glues, which gained popularity in 1916 or 1917 with the need for a water-resistant glue for building military aircraft.

Newer applications are seen most often in large companies in the health, personal care, and food and beverage industries, but there is continued growth in small- and large-part automotive assembly.

Although acrylics-based adhesives are still desirable, ethylene-derived material such as vinyl acetate ethylene (VAE) is being used in applications that have become too costly. "In some cases," a source says, "obvious performance trade-offs were accepted in exchange for the rebalancing of cost and risk versus value."

Sources also say the trend toward thinner films and lower coating weights is gaining favour for improved costs and sustainability.

On the legislative front, a market player expresses concern about the possibility of the US launching a process to replace the Toxic Substances Control Act (TSCA) - an effort one source likened to Reach in Europe.

"Such a change - and its effect on the complexity of managing chemicals in US commerce - would certainly dampen speed to market and possibly add cost constraints for various chemistry value streams," the source says.


Tyre demand drives butadiene/SBR
Butadiene and SBR Mark Yost and Frank Zaworski

The styrene-butadiene-rubber (SBR) industry is a major consumer of butadiene (BD), with about 75% of the chemical composition of SBR coming from BD.

While upwards of 80% of SBR is used in the production of new and replacement tyres for automobiles, trucks and other wheeled vehicles, approximately 5-10% finds its way into other products, such as caulking, mastic, moulded rubber goods, chewing gum, pharmaceutical products and many more.

The amount of SBR consumed in the production of adhesives ranges between 20m-30m lbs/year (9,072-13,608 tonnes/year), according to industry sources.

For the second half of 2013, all eyes in the US BD market are going to be on Asia and the tyre makers.

Sales of replacement tyres have been down as consumers around the world have been worried about the economy in 2013 and have delayed purchases of replacement tyres. Support for the tyre industry has come from auto manufacturers, which supply five tyres with every car they sell. But even the auto business has been patchy.

While the US and China are growing, much of the rest of the world is in an auto-buying slump. Europe has seen sales drop to nearly 20-year lows.

"The tyre companies are starting to watch inventories," says a buyer. "That tells me that demand is still not where we'd like it to be."

If there is any hope for the tyre market picking up, it's in the second half of 2013. However, many market fundamentals - including lower sales and higher inventories - point to a relatively flat 2013. All of which will continue to impact BD.

The BD US Gulf monthly contract price has fallen from $1.45/lb ($3,190/tonne) in March 2012 to 84 cents/lb in March 2013. The March contract price was up from 76 cents/lb, which was level for December-February. But by mid-March, buyers and sellers were already saying that the March increase had been too much.

"I was looking for a correction because the fundamentals aren't there to support 84 cents," says one trader.

While BD buyers have welcomed the lower contract prices, they have little room for material as downstream users have no need for it.

"We've gotten to the point in pricing where Asia and the US are about equal," says one producer. "Unfortunately, there is not excess capacity to meet whatever demand there is."


Stronger prices expected over 2013
Ethylene and propylene John Dietrich

Although US ethylene and propylene prices are expected to strengthen over the second and third quarters of 2013, as the US construction market picks up, lack of export availability could slow things down.

With the US construction season approaching and demand increasing, prices for ethylene and propylene are likely to move higher. Market players say they are already seeing polyvinyl chloride (PVC) production ramp up, while the summer driving season should also boost demand for propylene.

However, if US olefins derivatives prices remain higher, or if overseas demand continues to lag on economic conditions, growth could slow.

"US producers have to stop basing ethylene on a naphtha-made basis," says one consultant. "They need to base it on ethane and knock the price down."

There are concerns that even if prices come down, US olefins derivatives will struggle to attract interest overseas. Market players say China could decline US exports in favour of internal production for social reasons.

Additionally, the European market is not expected to improve because of its current divide regarding the euro.

However, market players add that there are sure to be several unplanned cracker outages which are likely to create temporary tight supply and boost spot prices.

"You can always count on someone having a problem, even if you don't know who it will be," a buyer points out.


Steady growth ahead for 2013
Isocyanates Ron Coifman

The outlook for US isocyanates markets is one of steady growth throughout 2013, in line with the economic recovery in the US, according to participants.

Downstream demand in key sectors that consume flexible and rigid polyurethane (PU) foams has increased in 2012, and the trend is expected to continue this year.

US toluene di-isocyanate (TDI) supply is said to be in balance with demand in North America. Sources say the recent maintenance at the Bayer MaterialScience facilities in Baytown, Texas, its declaration of force majeure on TDI - which was lifted in mid-March - and the 100% allocation effective 1 February, announced by BASF, did not affect PU production in the US. Sufficient inventories had been built in anticipation of the planned turnaround, industry sources say.

Additionally, US TDI buyers say the two producers were shipping material on schedule, even with the force majeure and the allocation in place. In South America, sources also noted no issues with US TDI availability. In Mexico, however, participants said TDI was snug in March, as buyers looked for alternate supply sources.

TDI price increases remained under discussion, but buyers are resisting the initiatives at 5 cent/lb ($110/tonne) or at 8 cents/lb announced for 15 February. US participants note that feedstock costs and adequate supply have weakened the argument for the increases, after earlier support for the hikes from the force majeure and allocation.

TDI demand from the automotive sector remained healthy, while business from the bedding sector was moderate, sources say.

Bayer declared force majeure on standard and speciality TDI products in North America effective from 15 February, after its 200,000 tonne/year Baytown, Texas, plant encountered technical difficulties because of equipment failure in one of two TDI units at the site. The force majeure was lifted on 14 March.

Bayer had started a turnaround for its TDI and methyl di-p-phenylene isocyanate (MDI) production trains in Baytown in late January. The turnaround had been expected to last up to nine weeks. In TDI feedstocks, prompt US n-grade toluene spot prices were discussed on 5 March at $4.34-4.40/gal FOB.

MDI buyers were resisting price increase initiatives of 5 cents/lb for 15 February, citing declining feedstock benzene prices. On the other hand, suppliers noted that despite recent weakening, benzene costs have increased significantly in the past year and a half.

Prices for MDI were assessed up by 8 cents/lb in January 2013 and by 5 cents/lb in October 2012. Demand is particularly strong from the automotive sector, while activity in construction and lamination is gauged as healthy, according to industry sources. Spray PU foams (SPF) have been performing particularly well in the past year, in line with the gradual recovery in the US construction sector.

No issues with supply have been noted during the ongoing maintenance at Bayer's isocyanates production units in Baytown.

In feedstocks, the US benzene contract for March dropped by 11 cents/gal to $4.69/gal, following weak benzene spot prices and energy futures, according to trade participants. The benzene contract was at $4.80/gal in February, a 36 cents/gal drop from January. It was at $3.00/gal in December 2011.


US epoxy resins face pressure
Epoxy resins John Dietrich

US epoxy resins producers are facing a difficult spring and summer because of competing feedstock and import pressures.

Producers have nominated price increases of 24 cents/lb ($529/tonne) for the first three months of 2013, and have passed through about 14 cents/lb through March.

The producers say they have had to increase prices to restore margins that were decimated by feedstock costs for benzene and propylene derivatives. "We understand that there is strong resistance to the nominations out there," a producer says. "But domestic margins are at an unsustainable level."

However, most US buyers say that the nominations have run out of steam because import availability is improving and material is at a strong discount to domestic product.

"If North American producers continue to push higher prices they'll lose market share," a buyer says. "This continues to be an oversupplied market."

Market players say import material is at a 10-12 cent/lb discount to domestic product, which should spur orders in March for April and May shipment. Earlier in 2013, the discount fell to 3-5 cents/lb, which buyers say made imports unattractive.

Market players are expecting stronger demand in the second and third quarters, mostly from the US construction sector, which could mitigate the long supply seen in the market. However, feedstock prices have dropped off in March, which could thwart the last of the producers' nominations.


Weak US styrene outlook for 2013
Styrene Brian Balboa

The US styrene outlook for the remainder of 2013 remains lacklustre, as market participants continue to cite weak domestic and overseas demand in the first quarter.

Most styrene trade sources said heading into 2013 they did not expect to see much improvement in market conditions, citing continued weak domestic and overseas demand and higher inventory positions.

This year's outlook has been more straightforward compared with 2012, which was mixed because of uncertainty regarding the global economy. Seasonal demand for US styrene is typically strong in September and October, ahead of the winter shopping season, and in March and April, from the packaging and construction industry ahead of the summer.

Suppliers say demand in late 2012 was lower than expected, while demand in March 2013 has been slow to pick up. Although market sentiment over demand has been described as lacklustre, total US styrene exports have risen.

Total 2012 US styrene exports were at 1.54m tonnes, up by 14% from 1.35m tonnes in 2011, according to data from the US International Trade Commission (ITC).

So far in 2013, styrene exports for January were at 161,441 tonnes to start the year, up by 31,260 tonnes or about 24% from 130,181 tonnes in January 2012. The top three destinations for US styrene in January were Mexico, the Netherlands and Brazil.

US styrene spot prices in 2013 so far have moved within a 4 cent/lb ($88/tonne) range since January. Spot prices were at 75 cents/lb in January, rising to a 2013 peak of 78 cents/lb in mid-February on higher feedstock benzene prices. So far in March though, styrene spot prices have retreated to a low of about 73 cents/lb, following the drop in benzene.

Although US ethylene and propylene prices are expected to strengthen over the second and third quarters of 2013, as the US construction market picks up, lack of export availability could slow things down.

With the US construction season approaching and demand increasing, prices for ethylene and propylene are likely to move higher. Market players say they are already seeing polyvinyl chloride (PVC) production ramp up, while the summer driving season should also boost demand for propylene.

However, if US olefins derivatives remain higher priced, or if overseas demand continues to lag on economic conditions, growth could slow.

"US producers have to stop basing ethylene on a naphtha-made basis," says one consultant. "They need to base it on ethane and knock the price down."

There are concerns that even if prices come down, US olefins derivatives will struggle to attract interest overseas. Market players say it remains a possibility that China could decline US exports in favour of internal production for social reasons.

Additionally, the European market is not expected to improve because of its current divide regarding the euro.

However, market players add that there are sure to be several unplanned cracker outages which will likely create temporary tight supply and boost spot prices.

"You can always count on someone having a problem, even if you don't know who it will be," a buyer point out.


Author: Multiple Multiple



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