News focus: Economic crisis takes its toll on Europe butac market

24 July 2014 11:23 Source:ICIS Chemical Business

Market has collapsed in key end use sectors such as automotive, paints and cosmetics with little sign of recovery

 
 
The European butyl acetate (butac) spot market continues to suffer from the impact of the 2008 economic crisis on demand. For many months butac suppliers have struggled with poor margins, with distributors suffering the most.

The uses of butyl acetate are widespread, including applications in paint manufacturing, automobiles, wood coatings, and cosmetics. It is used to make pharmaceuticals and as a fruit flavouring in a variety of food products.

But demand for some large-scale applications has shrunk and distributors have been tightly squeezed.

“Demand is very, very bad,” one said last month. “It [The Europe butac market] has shrunk by 35-40% since 2008 in my business.”

Earlier, in April, another distributor lamented the change. “Last year we lost 30% of the market. Business is down 30% from the previous year. This year [business is] at least 50-60% down from two years ago.”

This source attributed the decline to the wider economy impacting both the automotive industry and the paint industry.

A Mediterranean-based buyer agreed, although did not see such a severe decline. “For sure, the market is down from 2008, [it’s about] 5-10% down from 2008,” it said.

Market participants have not noticed any seasonal pickup of business this year either.

This ongoing flat demand – combined with increasing feedstock costs – has seriously impacted butac suppliers’ margins. Butyl acetate is an ester of acetic acid and butanol.

A €15/tonne increase in the July contract price brought the total price hike for propylene [the feedstock for butanol] close to €100/tonne from November last year.

By contrast, butac prices have remained largely flat on lacklustre demand, meaning that suppliers’ margins have gradually been eaten away.

As a result of this cumulative effect, butac producers were targeting a July price hike of €50-60/tonne. However, buyer resistance has again resulted in the majority of attempted hikes being severely limited.

The consensus view is that it is butac distributors rather than producers who have been hit hardest by the economic downturn.

Poor margins have resulted in distributors to some extent being pushed out of the market as more butac business is being done directly between producers and buyers.


STRUCTURAL CHANGE

In April a producer said: “[There’s been a] structural change in the market. More and more customers are going direct to producers. It’s for distributors [rather than producers or buyers] that demand is down.

“We receive enquiries from customers who in the past bought from distributors. Margins are so poor; everyone tries to save money where they can.”

A second producer agreed with this view: “I can confirm that [more business is being done directly between producers and buyers]. In terms of squeezed margins, you sometimes can’t afford to have a distributor in between that needs to make its own margin as well.

“We haven’t actively pushed out distributors. You’ve seen Bax [exit the market], and other traders.”

European petrochemical distributors Bax Chemicals exited the market last year to focus on the activities of Bax Chemicals Export Overseas.

Both changes in the chemical trading and distribution markets in recent years, and the economic crisis, had left their marks, Bax director Erik Schurgers explained.

The producer continued: “Distributors have disappeared out of the [butac] market because there’s no money in it any more. If you do the back calculation, there’s nothing left.”

A distributor agreed that the butac market has altered significantly. “It’s definitely dead,” this source said. “Demand has changed so drastically. I think the spot market will definitely stay dead. Most business is done direct between producers and customers. Distributors are being pushed out in order to save money.”

This distributor added that three to four years ago it used to do 500 tonnes of butac business per month. That has now dropped to 50-100 tonnes per month.

While larger distributors may have the flexibility to focus on money making products it is much harder for small companies, this source said. “Large distributors can compensate with [other] products. We are small, we have more problems.”

According to this distributor, such a structural change had been expected.

“Four to five years ago I started in the distribution market for chemicals. Everybody was saying there would be an erosion in the market on the traders’/distributors’ side, where some would have to close in order for others to survive. This process is not complete yet. It’s survival of the fittest.”

LACKLUSTRE DEMAND

The outlook for the European butac market is not optimistic.

For some time, many butac producers have adjusted their run rates to match lacklustre demand, and this is likely to continue. A return to the pre-crisis days is not expected.

“We’re definitely not going to return to the volumes seen five, six or seven years ago, that’s for sure,” the first producer said. “Pre-crisis levels are not going to return. But I don’t see it as that bad.”

Yet margins are poor enough for some producers to question whether it is worth of continuing to produce spot butac when much better returns may be made on other products such as butanol.

Companies produce according to demand and available margins and in this case it depends on the alternatives for butanol. If you can sell the alcohol profitably it does not always make sense to produce the ester.

“People [butac producers] need to start questioning [butac production] as a whole,” one producer said this month. “You can do the maths.”

By Jo Pitches