European ethanolamines industry squeezed

28 May 2014 19:51 Source:ICIS News

Focus story by Rhian O'Connor

LONDON (ICIS)--The rise in the European ethylene contract price for June presents a further problem for European ethanolamines manufacturers who face margin squeezes and further losses of global competiveness, sources said on Wednesday.

The €10/tonne increase in the June contract price for key raw material ethylene comes at a time when the industry is faced with weak demand that is preventing price increases.

“I see no chance of price increase. Naphtha only impacts Europe and Asia. Higher naphtha [is] not justification for higher price increases - will give away competitive position,” said a buyer.

The industry is being faced with imports of ethanolamines from other regions with more favourable cost positions, which has led to a price differential between imports and local production.

“[There is a] disconnect between imports and local producers,” said one distributor. The distributor went on to explain: “It’s important to not make a big gap between import and local material. [The] gap is getting bigger and bigger as [the] ethylene gap increases.”

Some of the premium can be justified by quality, reliability and other issues.

“Have to calculate higher logistics costs,” said a producer. The producer went on to explain: “Buyers are interested in local long-term supplier. ... Can’t buy 100% of demand with all imports.”

“[Customers] will pay a certain premium for local product, can call and get product day after - handing of road tank truck rather than container. ... Have to keep in mind, Asian material does not come in with regularity every month,” said the distributor.

“In terms of TEA [triethanolamine], there is a quality [difference], especially in the colour. ... Some [Asian producers] have quality issues. Transportation makes [the] issue worse,” said the producer.

In addition, some producers see it as the duty of downstream purchasers to keep the European industry alive.

“Customers need to support local industry,” said a second producer.

However, the buyer disputed this, saying: “If I buy 10% higher than the market, the board asks what is the strategy in buying this product. If pay 2-3% more, no problem. It’s not the buyers [not supporting European industry], it’s the markets.”

Quality and logistics concerns also seem to be fading with time.

“[Customers] import material from Asia, some [with] hesitation but it got better over the years - Thai, Korean and Taiwan [product].”

The situation is likely to be exacerbated with new capacities being built, especially the Sadara plant in Jubail, Saudi Arabia.

Sadara is a joint venture between Dow Chemical and Saudi Aramco, and material is due to be marketed in Europe by Dow. The plant is due to come on-stream by late 2015/early 2016. Participants have mixed views on the impact.

“Sadara I take really seriously," said the first producer. "[However, they are] downstream in ethylene amines, no MEA [monoethanolamine for sale]. It's used captively. ... Also possible Dow will limit material out of the US, keep some material in US and not importing into Europe."

Others were more concerned, with a distributor saying: “Dow Sadara should be interesting for imports.”

The net result of competitive imports, weak demand and higher ethylene prices is a squeeze at a time when producers can ill afford it.

“[Producers] can’t decrease prices further as [they are] reaching cost base,” said a second distributor.

By Rhian O'Connor