27 September 2013 10:22 [Source: ICB]
Weak demand and long supply in Asia have forced Asian sellers to export more epoxy resins to the US and Europe, resulting in falling prices in those regions.
Spot and contract prices in the US and Europe have declined in recent weeks due to the arrival of cheaper material from Asia. Production, labour and feedstock costs are all lower in Asia and regional sellers have taken advantage of this by selling more material overseas. Asian plants also operate more efficiently as they are newer and more technologically advanced.
“Our products are of better quality in terms of both colour and consistency,” an Asian producer said.
In response to increasing volumes of cheap imports, European and North American producers have reduced prices to keep competition at bay.
“Dow Chemicals and Momentive reduced their prices in the US by $100/tonne [€76/tonne] recently in the face of stiff competition from us,” said a northeast Asian producer.
This reduction narrowed the gap between US domestic epoxy resin prices and overseas material, as US producers are seeking to regain market share.
In August US domestic contract prices dropped by 6 cents/lb, putting prices at $1.38-1.46/lb on a DEL (delivered) bulk basis.
US spot prices also fell by 2 cents/lb, down to $1.33-1.38/lb DEL bulk.
“Buyers are trying to talk up the idea that prices could go lower or should go lower,” a trader said. “But there’s no room for imports to go down.”
The narrowing of the gap in the US is largely tied to US producers seeking to reclaim market share after they pushed prices up by 15-16 cents/lb in the summer to restore margins.
“At some point in time the low volumes will outweigh the high margins,” a buyer said. “Domestic producers are coming to the table with offers comparable to overseas sellers.”
Major US epoxy resins producers include Dow Chemical, Huntsman and Momentive Specialty Chemicals.
EUROPE FEEDSTOCK COSTS UP
In Europe, epoxy resins prices declined in September because of cheap imports from Asia and the Middle East. Buyers achieved a €45-50/tonne decrease. Liquid epoxy resin prices settled at €2480-2525/tonne FD NWE.
“Feedstock propylene and benzene costs have increased in September, so sooner or later we will have to pass that on,” a European epoxy resins producer said.
“This cannot go on forever, we cannot afford a huge drop,” the producer added.
Similarly, recent increases in US feedstock costs for propylene and benzene could push domestic producers to seek price increases or rollovers, which would allow imports to maintain their pricing advantage.
Imports to Europe in 2013 increased significantly compared with previous years, not because of improved demand, but because of the price advantage for other regions. This trend is unlikely to stop in the near future because the Asian market is oversupplied and underlying global demand is weak.
According to European buyers, Asian liquid epoxy resins are offered at €2,100-2,150/tonne DDP (delivered, duty paid) Europe, for September delivery, depending on origin.
The EU, the US and South Korea have a free trade agreement in place and, as a result, South Korean producers are likely to be the main beneficiaries of the increased overseas appetite for Asian epoxy resins.
The European August epoxy resins contract price is at €2,525-2,575/tonne FD (free delivered) NWE (northwest Europe).
Imports now take up a significant part of the European market, a trend that has eaten into the market share of domestic sellers.
“Imports have gained share and they are now a big chunk of the market. Since the market has not grown this means EU-sourced material is losing share,” a second producer said.
MORE ASIAN CARGOES LIKELY
Meanwhile, shipments of Asian epoxy resins cargoes to Europe are likely to increase further during the rest of the year, as European buyers seek to capitalise on cheaper material.
Asian spot liquid epoxy resins (LER) prices are at $2,500-2,670/tonne FOB (free on board) northeast Asia, according to ICIS data.
Epoxy resins imported to Europe from Northeast Asia are offered at $3,000/tonne FD NWE, compared with spot offers in Europe at around $3,100/tonne FD NWE, representing a $100/tonne premium over imported material from Asia.
Although the price gap between Europe and Asia has stabilised and has shown signs of narrowing in recent months, export volumes to Europe and the US are still expected to increase in the next few months.
Because of lacklustre demand in Asia in an oversupplied market, exporting to Europe and the US seems to be a lucrative business.
Demand has been poor in Asia since the second quarter. While downstream demand from paint coatings remains relatively stable, consumption from the electronics sector - a major user of epoxy resins - has been weak this year.
The currency depreciation in some developing Asian countries since June this year, including Malaysia, Thailand and India, has further escalated the problem, as demand for imports diminished.
Although the price difference between European and Asian cargoes has generated increased demand for cheaper Asian material, there have been no strong signs to indicate that underlying global demand is picking up, according to market sources.
The price gap between Asian and European material has been widening from August 2012 to February this year, according to ICIS data.
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