OUTLOOK '14: Europe IPA, MEK, MIBK demand likely to remain weak

27 December 2013 13:00 Source:ICIS News

By Vladimir Guevarra

LONDON (ICIS)--The European isopropanol (IPA), methyl ethyl ketone (MEK) and methyl isobutyl ketone (MIBK) markets have seen lacklustre demand in 2013 and this is expected to continue into 2014.

Consumption has been weak because of poor macroeconomic conditions.

The EU's GDP growth this year is forecast by the European Commission to be flat compared with last year, and is expected to grow by only 1.4% in 2014. Unemployment is still a problem, with the EU jobless rate forecast at 11.1% this year and at 11% next year.

Spot prices of IPA, MEK and MIBK have been on the downtrend in 2013. MEK prices rose to an 18-month high in November. That rise, however, was because of tight supply following a force majeure at a plant in Germany, and not because of an increase in demand, sources said.

Buying activity in the three markets is expected to fall in December because of year-end destocking.

Traders have been cautious and expect no huge improvement in demand next year compared to this year. “It’s hard to say how that [higher GDP forecast] will impact us. Personally, I don’t expect a much better 2014. I expect the solvents market to be rather the same as 2013,” a trader said.

Some producers say the markets are not too dire. One seller has described the markets as “OK, not great, but not bad either.”

However, some producers are under pressure. Sasol said in early November that it will mothball its IPA plant in Herne, Germany. The plant is expected to be shut down by the second quarter of 2014, and Sasol will consolidate its production of IPA at its larger manufacturing unit in Moers, also in Germany.

Sasol said the move is “aimed at improving the economic performance” of the company.

“The increasingly challenging feedstock situation and market conditions for its products have negatively impacted the financial performance of the company,” Sasol said.

Sasol’s IPA plant in Herne has a capacity of 85,000 tonnes/year, while the plant in Moers has a capacity of 155,000 tonnes/year. The company has not clarified whether the total capacity of 240,000 tonnes/year will remain in place after the shutdown of the Herne plant.

Some sources expect Sasol to cut total production, which could lead to some tightening in supply next year.

A trader said, however, that any decrease in Sasol’s production could be easily filled by other sellers like Shell or Novapex.

Indeed, Novapex is planning to boost its production capacity of IPA at its plant in Roussillon, France, by 10,000 tonnes/year to reach a total capacity of 60,000 tonnes/year in 2014.

The MEK market is seeing some “fragmentation”, a producer said, describing how some buyers are being offered spot material while others are not. A trader said it has not received offers of spot material in October and November.

There are reports of production problems at a European producer and limited offers from another producer, all leading to tighter supply in the market - but these could not be confirmed at source. 

Buyers said that current MEK spot prices - hovering at 18-month highs - are not justifiable and expect price levels to fall when production and supply issues are solved.

On the MIBK market, prices are at their lowest levels since early February last year. Prices have been on a general downtrend since September 2012, though there was some sideways movement in March this year before the price falls continued. The fall has been attributed to poor demand.

Consumption of MIBK is unlikely to see any huge increase, if any at all, next year because of a weak macroeconomic environment, sources said.

The current downtrend in the spot price of feedstock acetone could also influence the price of MIBK. Acetone prices in Europe firmed from July to October, but after reaching a high in the second half of the year, they went into a sharp decline because of low demand from the solvents sector.

MIBK demand will likely be influenced by consumption in end-user markets like the car industry. Automotive sales in Western Europe are expected to remain weak, with sales reaching a bottom of 12m units in 2014, and largely remaining there for the foreseeable future - far from the historical peak of 2007, when 16.8m units were sold, according to a report in June by business consulting firm Alix Partners.

On the other side of the coin, however, Central and Eastern Europe will continue to grow, adding about 2m vehicles in the next five years.

By Vladimir Guevarra