VAM Is Hammered by One-Two-Punch Of Runaway Feedstock Costs,Weak Demand

03 September 2001 00:00  [Source: ICB Americas]

Acetic acid and vinyl acetate monomer (VAM) are having a rough year because of the run-up in feedstock costs last winter and weak demand as a result of the general economic slowdown. Producers have different assessments of the market, but they remain confident about the industry's long-term strength and expect a recovery once the economy improves.

Acetic and VAM generally grow at a 3 to 4 percent annual rate in Europe and North America, and faster in Asia, especially China. This year, however, the VAM market is down roughly 15 percent on a global basis, according to Mike Marinaccio, global business director for VAM at Dow Chemical Company. Mr. Marinaccio blames the market's troubles on both the overall economic slowdown and hefty de-stocking by the industry's customers and their customers.

Because of such extensive destocking, demand is almost certain to pick up, but Mr. Marinaccio does not expect the industry to see an economic recovery until the second half of next year. "No significant across-the-board improvement is expected until then," he says.

Finlay Morrison, commercial manager for acetyls at Celanese Chemicals, says the strength of demand and the cost of production vary from region to region. During the first quarter, the North American market was hurt by high feedstock costs, but Mr. Morrison says raw material costs came down somewhat during the second quarter.

He considers European demand stable during the first half, about equivalent to what it was last year. Extensive European holidays in July and August make it difficult to judge how strong a year Europe will have. In Asia, Japan, South Korea and Taiwan are having a relatively difficult year. Although China's demand is not especially strong, Celanese says the industry has opportunities in that country because of higher-cost plants.

A third producer notes that North American margins "were pretty sick," in the first quarter. The second quarter "improved a bit," he says, and the third quarter "improved a bit more."

Producers say there were some price increases on acetic acid, but not enough to rebuild margins. VAM pricing rose for seven straight quarters, starting in the third quarter of 1999, but after the run-up in natural gas costs in the first quarter, prices have come down because of weak demand, and margins have been squeezed compared to last year's fourth quarter.

Despite the market's downturn, producers are upgrading their operations and gearing up for a resumption of growth. Mr. Marinaccio notes that after the merger between Dow and Union Carbide Corp., Dow is exploring opportunities to strengthen its global VAM business, which was formerly part of Carbide.

During the past year, Celan-ese introduced its VAntage technology, increasing the efficiency of its global VAM operations. The company says the technology will enable it to add capacity equivalent to a world-scale plant at only 10 to 15 percent of the cost of building a grassroots facility.

Last March, Celanese claimed "a major breakthrough" in its acid optimization technology for the production of acetic acid. By the end of the year, the company will fully implement its new AO Plus technology at its Clear Lake, Tex., plant, raising that site's capacity by 20 percent to an annual nameplate of 1.2 million metric tons. A year ago, the market was so tight, Celanese was forced to declare force majeure on acetic and VAM in Asia after an outside supplier declared force majeure on its ability to supply carbon monoxide to Celanese's plant in Singapore.

During the fourth quarter of 2000, BP brought on a 400,000-metric-ton-per-year acetic acid plant in Kerteh, Malaysia. BP's 250,000-metric-ton VAM plant in Hull, England, will start up in the third quarter. Once that unit is running, the company will close its older 120,000-metric-ton VAM plant in Baglan Bay, Wales. The 55,000-metric-ton VAM plant in Porto Marghera, Italy, which was operated by EniChem and marketed by BP, was shut down in June.

In Taiwan, Dairen Chemical Corp. converted its 120,000-ton-per-year VAM plant to allyl alcohol and opened a new 240,000-ton VAM plant in April.

ICIS Copyright © Reed Business Information 2009

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