02 May 2014 16:01 [Source: ICB]
Adhesives and sealants producers buy a wide range of raw materials. ICIS editors give the outlook for the most important feedstocks
Acrylate esters Larry Terry
Acrylates weather harsh winter
US acrylic acid (AA) and acrylate esters, like other markets closely linked to construction and coatings, have been challenged by persistently harsh winter weather in the northeast, but participants are mostly hopeful about near-term demand.
The cold US winter has hit chemicals demand
Copyright: Rex Features
Although memories of the severely delayed spring 2013 coatings season are still fresh on the collective mind, some players were optimistic heading into this year’s International Petrochemical Conference (IPC), even if their reasons varied.
“It’s not the weather that’s holding back the economy,” a buyer says. “It’s pockets of the economy. If people say the economy is bad, it tends to be bad – a self-fulfilling prophecy.”
The market will see residual demand from insurance-related rebuilding stemming from the devastating storms of 2013 after the winter of 2014 is over, the buyer adds.
“That is going to happen. Reconstruction will take place on the other side of this. There’s always a reason for hope,” the customer says. “The amount of damage that was and is being done to residences will need to be repaired. That is pent-up demand.”
Others are less positive.
“The market is long, demand is weak and spot prices are low and disconnected from contracts,” another customer says. And yet another customer says that overall glacial acrylic acid (GAA) is strong but that downward price pressure is still in play.
But on one point there is consensus.
“Until we get some kind of clear direction and reason for homeowners to buy homes or renovate, there’s no way to justify the view that the recovery is here to stay,” a buyer says. “The recovery is so tentative right now; that’s the problem.”
“There’s not enough ground-breaking going on to drive demand, so much of it is or will be storm-damage repair – not reflective of a healthy economy – as would be housing starts and other new construction.
Downstream signals are somewhat mixed.
In spite of some recent positive housing numbers, US sales of new single-family homes fell by 3.3% in February from January, the Commerce Department recently reported.
Last month’s selling pace also was 1.1% below activity seen in February 2013. The recent decline partly offset a sharp 9.6% gain recorded in January, which had ended two months of declines, including a 7% drop in December.
Butadiene John Dietrich
Butadiene market facing possible Asian arbitrage
The US butadiene (BD) market could be set for a drop on the back of possible lengthy supply out of Asia. US buyers say that the early-2014 run-up in spot BD prices stemming from tight supply could be reversed, although supply remains tight.
The buyers say the spate of spot trades that pushed US prices as high as the mid-80s cents/lb level were never supported by demand.
With Asian material now at a discount of $450-500/tonne to US spot prices, sources say BD buyers are looking to exploit the arbitrage window in April and May.
However, sources say that vessel availability is limited because of a spate of buying in February, which could limit the opportunities for US buyers to import Asian BD.
Additionally, US BD buyers express concern that the downstream styrene-butadiene-rubber (SBR) and other markets could also start importing Asian material because of the wide price gap.
Asian BD has been forced down because of oversupply in the region, increasing inventories of natural rubber and weak downstream demand, especially in China.
US sources say BD and feedstock crude C4 import availability out of Europe is also tight, which has kept a floor on US spot prices.
US BD contract prices for April settled at a rollover, largely on the back of tight supply, which could also spur an increase in import interest.
SBR Tracy Dang
SBR players monitor impact of Lion plant restart
US styrene-butadiene-rubber (SBR) market participants are keeping an eye on the restart of the idled Lion Copolymer plant in Baton Rouge, Louisiana.
Lion shut down the 130,000 tonne/year SBR plant in late January because of unfavourable economic conditions, and operations are resuming under the new management of East West Copolymer & Rubber, a company newly created by former Lion CEO Greg Nelson.
According to market sources, East West began running one polymerisation chain on 31 March and was expected to start up one rubber finishing line on 2 April.
Initial production would be a run of black masterbatch and then oil-extended material, a trader says, adding that product selection was most likely based on sales East West had initially lined up.
The plant’s re-entry into the market is welcoming news, a buyer says, as this should help alleviate some tightness in supply and relieve upward pressure on SBR prices.
However, many market participants wonder how East West would carve out enough share of the market to support business in a sustainable manner.
According to a producer, some customers have said that they may buy SBR from East West on a spot basis, but most of them already have closed annual negotiations with other suppliers for 2014, particularly in the tyre sector, where agreements were finalised in 2013.
The US SBR market has seen an uptick in imports – with some material being targeted at former Lion customers – and volume that Lion was unable to supply has been replaced by domestic and imported material.
With demand remaining relatively steady, sources said that East West would have to guarantee raw material supply at lower costs and have high pricing policies in place in order to keep the company afloat.
Ethylene John Dietrich
Ethylene market waits for pipeline return
US ethylene supply remains unbalanced between Texas and Louisiana, keeping a firm ceiling on the lower Texas prices and a firm floor on the higher Louisiana prices.
Sources say spot ethylene remains long in Texas because of the ongoing shutdown of the Evangeline Pipeline, while spot ethylene in Louisiana is short.
This has kept spot prices on the benchmark Williams System in Texas in the low-50s cents/lb since early February. Spot prices started falling then on weaker demand stemming from several downstream plant production issues in the polyethylene (PE) and polyvinyl chloride (PVC) markets.
US Williams ethylene has traded between 50-53 cents/lb ($1,102-1,168/tonne) since 3 February.
The pipeline shutdown has prevented several producers in Texas from moving their ethylene to preferred downstream units in Louisiana. This has also tightened ethylene in Louisiana, putting it at a 13-15 cent/lb premium to Texas material.
Sources are mixed regarding the likely return of the pipeline, with some expecting a late-March or April return, and others expecting a restart as late as May.
Ethylene prices in Louisiana should also ease once Williams Olefins restarts its Geismar cracker in Louisiana with additional capacity in June. The cracker is expected to have an ethylene capacity of 885,000 tonnes/year after the restart.
“The question will become, once things open up between Texas and Louisiana, what moves?” a source asks. “Does Texas come up, or does Louisiana come down?” Sources say a spread of 3-4 cents/lb between the two regions is common but that Texas ethylene is likely to rise once the pipeline is restarted.
Prices are also expected to increase in April and May because of several ongoing and planned cracker turnarounds.
Propylene John Dietrich
Market stable on firm floor, ceiling
The US propylene market remains steady as market players wait for a more clear direction. Sources say that conflicting market dynamics in the refinery-grade propylene (RGP) and polymer-grade propylene (PGP) markets have put prices in a slight stalemate.
US RGP spot prices have been firm in the low 60s cents/lb level, although they started to fall slightly at the end of March.
Sources say that supply was tight during much of the month and is expected to remain so into April because of several refinery turnarounds, as well as gasoline production switching to summer blends.
RGP inventories have also been slightly higher year over year and remain long enough to outweigh alkylation values that have been above 70 cents/lb ($1,543/tonne) for most of 2014.
The tight supply of RGP has kept prices firm and placed a floor on PGP prices, which have been in the high-60s cents/lb for most of March.
Sources say the PGP market is also balanced, with buyers having healthy inventory volumes and waiting for prices to come down to more attractive levels.
PGP buyers have said that downstream polypropylene (PP) remains unattractive to export because of its high prices in the global market, which have weakened demand.
Sellers of PGP do not have high inventories, sources say, and are not eager to sell at lower prices just to move material.
PGP sellers are also waiting to see how supply and inventories are affected by the coming US cracker turnaround season, which could tighten PGP supply and allow producers to push prices back above the 70 cent/lb level.
Styrene Brian Balboa
Prices expected to fall with feedstock benzene
US styrene trade participants expect prices to come down in the second quarter alongside an expected decline in the feedstock benzene market.
The US April benzene contract is expected to settle lower following the recent slight decline in spot prices and an influx of imports from Asia, which was expected to ease supply concerns during the month.
The March benzene contract has already settled at $4.95/gal FOB (free on board), which was down 14 cents/gal from the previous month. As a result, styrene suppliers opted not to increase prices for March contracts, with some saying they expect to roll prices over from February.
A couple of styrene producers, though, say they have settled their early March styrene contract at declines of 2-4 cents/lb. Regular March styrene contracts were expected to emerge in the first week of April.
February styrene contract prices were at 85-89 cents/lb FOB (free onboard).
TDI Ron Coifman
Market remains firm heading into Q2
US toluene di-isocyanate (TDI) remains firm at March’s end after increases totalling 6 cents/lb were implemented in the first quarter.
A 4 cent/lb hike for TDI was assessed on 19 March, following a 2 cent/lb increase in the previous week, totalling a 6 cent/lb boost for the quarter, driven by a firm producer stance on price increase initiatives.
TDI buyers note that feedstock costs did not appear to be the major driver for the price increases. Industry sources say that the hike was supported by a strong position by producers, the view that the number of TDI manufacturers in the Americas is limited and the challenging logistics for imports from other regions.
Demand for downstream polyurethane (PU) products in March was gauged as softer than expected, according to sources, possibly because of the extended harsh US winter weather. Business, however, is expected to improve during the spring and summer, according to input from industry participants heading into this year’s IPC.
Sources say that recent special incentives at car dealers could be a sign of high inventories and weak demand for automobiles, which in turn could dampen PU business in the near future. On the other hand, soft conditions could be short-lived, as business could rally on warming weather after the recent heavy snowfalls.
TDI prices after the increases are assessed at $1.58-1.73/lb ($3,483-3,814/tonne) DEL (delivered) in bulk.
Epoxy resins John Dietrich
Prices steady amid long supply, sluggish demand
US March domestic epoxy resin contract prices rolled over as supply remained long and demand sputtered. The rollover kept US domestic epoxy resin contracts at $1.35-1.41/lb ($2,976-3,108/tonne) on a DEL (delivered) in bulk basis.
Sources say that US producers were able to implement a 3 cent/lb price increase over February and March contracts. February contracts were higher by 3 cents/lb, while March contracts were assessed at a rollover.
“In some cases it was more, depending on where they were coming from,” a producer says. “Pricing in the mid-$1.30s/lb is where most everyone is.”
Sources say the timing of the increases was mixed, with some opting to take the increase in February, others in March and others splitting the increase over the two months.
Producers initially sought a 5 cent/lb increase over the two months, with some sellers reporting being able to implement the full amount. However, producers say those that took the full 5 cent/lb increase were often at the lower end of the assessed range.
Most market players agree that pricing is in the mid-$1.30s/lb for domestic material, although some say they are closer to the low-$1.30s/lb.
The US epoxy resin market remains long, with import competition still fierce and inventories healthy.
Sources say demand has been flat, with little activity for a pre-build ahead of the US coatings season reported. “We were expecting more activity but there’s been little action,” the producer says. “The market is still long; people have stuff in their tanks.”
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