Market outlook: Asia VAM prices likely to continue downtrend in early 2015

Asia’s vinyl acetate monomer (VAM) market is likely to remain weighed down in early 2015 as a tight global supply eases following capacity growth in China and Taiwan, as well as on reduced production costs due to softer feedstock values.

Spot prices of VAM in south Asia and southeast Asia were driven to historical highs of above $1,700/tonne cost and freight (CFR) SE (southeast) Asia and South Asia in late March 2014, on tightened global supply sparked off by the permanent closure of VAM plants in Europe.

Rex Features Downstream from VAM, there is growth in EVA, which is used in solar encapsulants

The tight supply conditions in Europe were exacerbated by force majeure (FM) declarations in the first quarter of 2014 at two of the four VAM plants in the US – which became a key VAM supplier to Europe in 2014 following Europe’s permanent plant closures.

However, by early December 2014, VAM spot prices in South Asia and southeast Asia shed around 37% to 40% from their historical high values to trade at $1,100-1,150/tonne CFR South Asia and at $1,050-1,070/tonne CFR SE Asia.

CHINA EXPORTS SPIKE

A spike in exports from China since April contributed to the price correction.

China exported a total of 149,867 tonnes of VAM in the year to October 2014, versus around 3,444 tonnes exported in the whole of 2013, according to China Customs data. ICIS pricing introduced a FOB China price assessment on 29 August 2014 to track growing trade flows.

VAM from China has been sold into Thailand, Indonesia, Pakistan and India. Although some buyers in northeast Asia and India have raised concerns on VAM produced in China because of issues such as contamination during the delivery process as well as product purity, other buyers in Thailand, Indonesia and Pakistan are satisfied with the Chinese material.

“If tests [on Chinese VAM] pass and if prices of other producers’ cargoes remain high, I’ll book 50% of our requirements from China going forward,” a Thailand-based buyer had said in late September 2014.

A Pakistan-based importer said: “We are not keen on Middle East material because they are not competitive and are dutiable.”

VAM imports from China are exempt from Pakistan’s import duty of 5%.

“There was downward pressure in the fourth quarter because of China cargoes and easing supply and demand balance,” a northeast Asia-based VAM producer said.

“Some customers have interest in Chinese material because of the price incentive although most buyers cannot utilise Chinese product,” the producer added.

SUPPLY EASES

On the supply side, Taiwan’s Dairen Chemical restarted its 120,000 tonne/year No. 1 VAM plant at Tasheh since June/July 2014 with on-spec VAM output obtained in October 2014, according to sources close to the company.

In China, Sinopec Great Wall Energy and Chemical Co on 22 October 2014 resumed production at its new VAM plant in Yinchuan, Ningxia province, following a 20-day shutdown for modification works. The plant commenced trial runs on 26 August following several delays.

“In 2015 when plants [in the US] resume production normally, then price declines are unavoidable,” a Sinopec sales manager said.

The supply of Middle East origin cargoes into Asia may also stabilise as demand in Europe enters the winter lull season.

Such cargoes were being offered into Asia since late July 2014 according to some market players, following a hiatus of around one year because of comparatively higher prices in Europe earlier in the year.

“In the beginning we were expecting to supply more to Europe and reduce quantities to Asia because Europe can pay higher but we should revise the strategy because demand [in Europe] is set to slow down in winter,” a supplier said.

He said there would be more supplies to Asia of at least 1,000 tonnes per month although this was not fixed yet.

“There would be [a major] correction in prices for non-dutiable cargoes because one more VAM plant in Taiwan has started, and the new VAM plant in China is running well,” an India-based end-user said.

VAM imports from Singapore are exempt from India’s 7.5% import duty.

DEMAND OUTLOOK

On the demand side, India’s VAM demand growth in 2015 was projected to be 1-2% above 2014 levels, according to industry sources.

India’s VAM demand grew 5-6% in 2014 driven by the downstream emulsions/adhesives sectors, according to industry estimates.

India imports 12,000 to 13,000 tonnes per month of VAM.

“I doubt there would be any major upside in demand in 2015 because there is no significant change in consumption but it is unpredictable now,” an India-based end user said.

Meanwhile, declines in crude oil futures, naphtha, ethylene and acetic acid feedstock values further weighed on sentiment in the market.

“Our outlook for January and February depends on ethylene and crude prices as these are big factors in the buyers’ market,” a VAM producer said.

People are “nervous about the global economy and market softening”, a southeast Asia-based end user added.

“Raw material acetic acid and ethylene as well as crude futures prices are also dropping so we will buy smaller 1,000 to 2,000 tonne lots spread out for the next two months,” he added.

DOWNSTREAM CAPACITY EXPANSIONS

Longer term, new downstream capacity additions are centred in Taiwan and China, namely in the ethylene vinyl acetate (EVA) sector.

Taiwan’s USI Corp plans to start up two new EVA/low density polyethylene (LDPE) swing plants in Kaohsiung, Taiwan, in the fourth quarter of 2015, according to a company source.

The swing plants can each produce 45,000 tonnes/year of EVA/LDPE, with the EVA output containing vinyl acetate (VA) content of up to 36%, which goes into solar panel applications, the source added.

Taiwan’s Formosa Plastics (FPC) is also due to start up the first phase of its new EVA project comprising 72,000 tonnes/year of EVA capacity in Ningbo, China, in the latter half of 2015.

Jiangsu Sailboat Petrochemical Company plans to start up its new 300,000 tonne/year EVA/LDPE swing plant in Lianyungang, Jiangsu province, in the second half of 2015.

Some sources said the start-up may likely take place in the fourth quarter of 2015 or early 2016, depending on the market conditions.

EVA resin has applications in sports shoe soles, sandals, wire and cable coatings, hot melt adhesives as well as in solar panels.

Nevertheless, the new EVA plant capacities coupled with a spate of turnarounds at several VAM plants in the first quarter of 2015 failed to excite the market.

“The turnaround of VAM plants in 2015 won’t have much impact because the EVA market is not doing well,” a VAM supplier said.

On the other hand, supply of competitively priced VAM from China may be limited in the first quarter after weakened exports demand for the monomer prompted a couple of VAM producers in China to shut in October and November, while a third plant will be taken off line in January for turnaround.

Guangxi Guangwei Chemical has shut its 100,000 tonne/year VAM plant in Yizhou, Guangxi province since 30 October. The plant was scheduled to restart at the end of December but this had yet to be confirmed.

Shanghai Petrochemical was said to have shut its 90,000 tonne/year ethylene-based VAM plant in Jinshan, during the week ended 28 November.

Seperately, Sichuan Vinylon plans to take its 200,000 tonne/year plant off line later this month for turnaround, sources said.

Export availability from Japan in the first half of 2015 may be reduced owing to a plant turnaround in March.

Japan’s Showa Denko also plans to operate its 175,000 tonne/year VAM plant in Oita at reduced rates from beginning of May to the end of June due to maintenance scheduled at the utilities unit.
“Our supply availability will be reduced because maybe we have to concentrate on the Japanese market in the first half of 2015,” a company source said.