OUTLOOK ’14: Europe ACN chain demand to rely on economic growth

06 January 2014 14:30 Source:ICIS News

By Mark Victory and Matt Tudball

LONDON (ICIS)--European acrylonitrile (ACN) 2014 consumption is expected to grow because of macroeconomic recovery and adoption from new applications, according to market estimates.

Nevertheless, current volatility and an uncertain macroeconomic framework meant that sources were unable to predict the extent of any increase.

"The overall sentiment is set by acrylic fibre in Europe and Asia - I find it difficult to predict because I would guess it should become better, but I'm too far away from it, it's very psychological," a producer said.

"Right now people are complaining about product but people want to ship to Asia - we think 2014 compared to 2013 will be better but depends if it will be financially interesting,” a producer said.

Demand in 2014 will be largely dictated by GDP growth in Europe. Coupled with GDP recovery, applications such as acrylamide continue to see adoption.

"We certainly hope for an increase, it will be a disappointment to not see any increase, but difficult to say. I think eventually polymers and acrylamide volumes are increasing, it's just who's getting the share. The new areas are the growth areas," an ACN buyer said in October.

Nevertheless, some sources said they did not expect demand to recover in 2014 because of macroeconomic conditions, weak demand and pressure from new capacities coming on line in Asia.

"The outlook is not bright. I don't expect significant change versus this year. The pressure in Asia will continue, new plants come on stream.  I do not necessarily see a major change," a buyer said.

Several players cautioned that it is premature to predict demand for 2014 given the lack of transparency in the current market.

"We're anticipating a lot of competition from the United States because of cheap gas and competition, but you never know the reality. Right now people will be building stock and the market will be easier. Everything will stop for Lunar New Year - further on I don't know, but not expecting something extraordinary for next year.  [It] will be more or less the same year as this year," a producer said.

Adding further uncertainty, INEOS Nitriles is cutting production of ACN at its Green Lake, Texas, facility by 50% of capacity in January due to “unsustainable margins”, the company announced on 16 December.

A "significant proportion of capacity" will be idled through the first quarter of 2014, subject to a review of markets, INEOS Nitriles said in a news release. The Green Lake plant has a nameplate capacity of 545,000 tonnes/year, according to the ICIS plants and projects database.

Views on the impact of the INEOS Nitriles announcement were mixed. Several players expected that the capacity reduction – coupled with tight supply in Asia – will prevent low-priced imports entering Europe. Throughout the fourth quarter of 2013, low priced material from overseas has put downward pressure on European prices.

“Cheap material will totally disappear - I don't know where people buying imported material will get it from - we'll only sell at appropriate margin. [In] 2014 - certainly there is a strong push to restore the pricing, either the customers pay the price of the product or we will shutdown,” a producer said.

Other players, however, said that production rates in the US are already reduced and that the INEOS Nitriles reduction will not have a significant impact on the overall supply/demand balance.

Downstream, growth in the European acrylonitrile-styrene-butadiene (ABS) market in 2014 is not expected to be more than 1-2% above 2013 levels, if at all, according to market participants. The overall macroeconomic situation in Europe remains subdued, with the automotive sector in particular expected to be slow into 2014.

Softer automotive demand may continue to be offset by demand form the electronics and appliances sectors. Purchases of smaller ‘luxury’ items, such as high-end household appliances or entertainment systems which use ABS for its aesthetic qualities, was good in 2013 as consumers got more gratification from these smaller purchases rather than spending larger sums on cars.

ABS buyers are likely to continue to purchase hand-to-mouth in 2014 as they did throughout 2013 because they cannot predict end-use market demand patterns. Most compounders and distributors want to keep stock levels low so they are better placed to react to unseen feedstock price movements.

The European market will continue to watch the price of Asian imports, particularly from South Korea, though not all European producers are directly affected by cheaper Asian material, instead feeling the impact in price movements of other European producers reacting to Asian prices.

Data from statistics agency Eurostat show that September year-on-year exports from South Korea and Taiwan, the two largest ABS exporters to the EU, were down in 2013. South Korean exports dropped 4.4%, and Taiwanese exports dropped 9.3% year on year.

However, the Free Trade Agreement between the EU and South Korea will reduce import duty rates to zero on 1 July 2014, which could lead to an increase in South Korean material into Europe.

Demand in the US ABS market is expected to remain stable, with growth in the key automotive and housing markets looking steady for 2014, though still considerably below 2008 levels.

In Asia, Chinese domestic ABS demand is expected to increase but will be served by higher domestic production.

According to sources in the European market, China is keen to move away from being a net exporter of ABS finished goods to the EU and US, where it has seen demand drop considerably since 2008. Instead it will look to produce more ‘sophisticated’ finished goods intended for the Chinese consumer market.

China was the key export market for South Korean and Taiwanese ABS producers, but has become increasingly more self-sufficient in recent years.

Subsequently South Korean and Taiwanese producers are searching for new export markets such as Turkey and Russia in order to shift excess volumes. One Korean producer reduced its production rates to 50% capacity in November and December 2013 because of a lack of demand. 

By Mark Victory