Price and market trends: Asia imports hit Europe ECH market

15 November 2013 10:00 Source:ICIS Chemical Business

Some European players could go out of business as cheap Asian material hits the market

European epichlorohydrin (ECH) producers, especially smaller ones producing for the epoxy resins market, could go out of business in 2014 as they struggle to compete against cheap Asian imports, sources warned.

The primary market for ECH is epoxy resins but, the material is also a precursor to monomers for other resins and polymers. Several ECH producers noted that they are looking at new applications and niche markets to escape the doldrums of the epoxy market.

The threat to European ECH producers stems from overcapacity and oversupply in Asia, following a surge in investment in epoxy manufacture, which was driven by the Asian economic growth story.

This has resulted in a surge of exports to the US and Europe, particularly during the second half of 2013.

The impact of cheap imports has been felt more acutely due to weakness in the US dollar against the euro – limiting exports to North America from the region – and an EU free trade agreement with South Korea.

This is being further exacerbated by weak epoxy resin demand, as a result of falling automotive and construction output, and macroeconomic uncertainty.

“Korean and Taiwanese producers invested at the same time in new equipment and new plants which are more efficient. Due to the new investment and lower demand in Asia, they have to import to Europe. I don’t see any big change next year,” an epoxy resins buyer said.

CHEAPER TO BUY THAN MAKE
Comments from an epoxy resins producer further highlight the difficult situation many ECH producers, particularly smaller ones, are in: “We make ECH, but at the moment, it is cheaper to buy than to make.”

An ECH producer said: “The smaller ones [ECH producers] may go out of business. It’s the law of the jungle – the fitter ones remain. February to May were the only good months in over two years.

With such a bad situation, weaker producers will have to leave the market. Margins are way too short.”

An ECH buyer and epoxy producer said: “We’ve dragged down to those Asian import levels. None in the epoxy market are making much money these days. It’s ugly”.

Even recent falling raw materials prices are offering little respite to beleaguered ECH producers. One said: “Business is tough – even when raw materials go down, our customers negotiate harder.”

China’s slower growth levels will continue to drive Asian exports, so many European producers are hoping for Chinese economic growth to pick up. Recovery for European ECH producers could, however, come from domestic markets. In the European Commission’s autumn 2013 economic forecast, it anticipates GDP growth in the second half of 2013.

ECONOMIC RECOVERY
“In recent months, there have been encouraging signs that an economic recovery is underway in Europe. After contracting up to the first quarter of 2013, the European economy started to grow again in the second quarter and real GDP is set to continue growing in the remainder of this year. Growth in the second half of 2013 is expected at 0.5% compared to the same period in 2012 in the EU,” said the commission in the report.

“On an annual basis, real GDP growth this year is estimated at 0.0 % in the EU and -0.4% in the euro area.

Looking ahead, economic growth is forecast to gradually gather pace over the forecast horizon, to 1.4% in the EU and 1.1% the euro area in 2014, reaching 1.9% and 1.7% in 2015, respectively,” the report added.

By Iain Packham