OUTLOOK ’13: Europe acrylates players seek sustainability, stability

By Helena Strathearn

LONDON (ICIS)–While it is anyone’s guess as to how the European acrylates markets will fair in 2013, players across the sector agree there is a need to return to a healthy, sustainable level as margins have dwindled on high feedstock costs and soft demand.

It is a buyer’s market in Europe, but buyers from the acrylic acid (AA), acrylate esters, methyl methacrylate (MMA) and polymethyl methacrylate (PMMA) markets say current price levels are unsustainable. One consumer from the MMA market said spot prices need to move up in 2013, although it foresaw steady pricing in January.

Another MMA consumer said it would help the industry if demand and pricing across the supply chain picked up, but added that if higher prices cannot be passed on downstream, it would not improve the market.

Most sources expect 2013 acrylates demand to resemble that in 2012. One MMA producer, however, said it expected robust demand in the first half of next year. It said demand in the first quarter of 2013 would be better than it has been in the fourth quarter of 2012, adding that it thought it likely the market would pick up quickly in the first quarter. The producer said prices should rise slightly in first quarter contracts.

It remains to be seen how prices and demand will evolve in the acrylates sectors in the new year, but there is some expectation that prices will rise in the first quarter. Demand might pick up as stocks are replenished, and producers are keen to claw back lost margins. In addition to these factors, both the US and Asian MMA markets have seen price rises in the past few weeks. Generally, MMA prices in Europe lag six weeks behind price movements in these regions.

In Asia, MMA prices are firming on tight supply.

European producers are facing high production costs, along with demand that began slowing in July.

One producer said: “I’m worried about the current level of margin. We are in a situation that is not very sustainable. It’s okay to have expensive raw materials if the market price is expensive, because you recover your margin.” There is talk that suppliers might opt to cut production rates to improve profitability.

January and February are expected to indicate the real level of demand, according to AA market sources. Speculating on the demand levels early on in 2013, sellers agreed: “I don’t think it’ll be extraordinary, but it won’t be a disaster either.”

MMA producers are looking for recognition of the impact of raw material price increases on production costs. Feedstock methanol is priced at a four-year high, ammonia prices remain high in the $600s/tonne (€456/tonne) FOB (free on board) Yuzhny, while acetone remains at a high level.

A lack of confidence has affected buying interest in 2012. It has been a year marked by uncertainty and a lack of visibility, with participants thinking that each month would be better than the last. Sellers have been under pressure to reduce prices, amid lacklustre demand, but they have said they cannot afford further price decreases. “We have not got much room to manoeuvre with manufacturing costs,” a seller said.

If propylene rolls over in January, the acrylates market could see sizeable increases targeted in January as producers try to regain some margin, one seller said.

An acrylate esters consumer said forecasting for 2013 is very difficult, but it hopes to see similar price levels to 2012. “Although, it could be problematic if AA is tight,” it added. There is a possibility the European market could tighten if volumes remain short in Asia, following the explosion at Japanese company Nippon Shokubai’s Himeji facility in September, which saw the company’s AA and super absorbent polymer (SAP) facilities shut down.

There is not much stock in the acrylic acid market, but as many consumers expect to see some level of price increase in January or February, anxiety is preventing players from emptying stocks entirely. “AA can go short quickly,” one seller said. “There is a big question mark on demand globally. We expect a bit of a turn up in January through to March, but there are various different scenarios that could play out.”

One PMMA producer said the first quarter would be flat with 2012’s fourth quarter. “If there is a pick up, it will be small,” it added. However, a consumer said automotive demand is expected to be below levels seen in the fourth quarter. “The expectation is that prices should drop a little more in the first quarter because of low demand,” it said.

An MMA producer said if prices were to decrease any more, it would severely compromise margins. “It’s extremely difficult for the producers. It is the producers that are supporting all the upstream costs,” it said. “We are at a peak – something must happen. The costs will have to be absorbed downstream.”

An AA producer said of its expectations for 2013: “Everyone is waiting to see what will happen in terms of raw materials at the beginning of next year. We are preparing for a good start, as people will be replenishing stocks. But I have no crystal ball. Demand will answer the question.”

($1 = €0.76)