Dow acrylic acid cuts seen as good first step

Focus article by Larry Terry

HOUSTON (ICIS)–Some US acrylates buyers welcomed news this week that Dow Chemical will soon trim its domestic crude acrylic acid (AA) production by about 20% on persistently poor market economics, but the news may not all be good.

A source close to Dow told ICIS earlier this week that the company will idle one of five crude acrylic acid (AA) production lines at its Deer Park plant in Texas within the next few weeks, citing a need to cure chronic oversupply and anaemic margins, and help “ensure the long-term viability” of the domestic acrylates business.

Nameplate AA production at the Deer Park plant is 580,000 tonnes/year, the largest production facility in the US, so the closure of one line would take an estimated 116,000 tonnes of acrylic acid out of the domestic and export merchant market.

Why would customers support a move designed to help cure a significant supply-demand imbalance and therefore bolster product prices now at 61/2-year lows?

Ensuring supply to key downstream markets including paint and coatings, adhesives, superabsorbent polymers (SAP), detergents and water treatment is crucial for both sides of the market, but the production cutback will shrink Dow’s merchant-market presence to about 30% from its current 45%, the company estimated.

BASF’s production is also predominantly captive, leaving some observers to wonder if BASF and Arkema will be able to pick up the slack.

At least one buyer has no such concern, citing persistent supply overhang.

“My take is that (the shutdown) will have zero effect on the market. I think the net result of them making this move will be to immediately bring supply more in line with demand,” the customer said. “It’s a smart step, but it’s just a first step.

“If we were looking at a past year of average demand, the effect of the cutback might be significant, but not right now,” the buyer said, conceding that when demand picks up again, there will be a sling-shot effect, but not significant enough to strain the market as it stands now.

“We’re in a totally different market today than in the past, and the producers know how to get more throughput from their plants,” the buyer said, hinting at further steps to make the acrylates market more efficient. “So even when the market returns … the sellers will be able to handle the demand with nominally reduced manufacturing levels.”

Another customer also said reduced production would help make the market healthier, as producers’ margins would likely improve to reinvestment levels.

Although no other domestic cutbacks have been announced, Arkema recently said market conditions in China prompted it not to exercise an option to increase its stake in the Chinese AA and butyl acrylate (butyl-A) joint venture Taixing Sunke Chemicals.

Acrylates settled flat for January, holding glacial acrylic acid (GAA) contract values, for example, at a range of 74-78 cents/lb ($1,631-1,720/tonne) FD (free delivered) from December, as assessed by ICIS.

February acrylates pricing was said to be facing downward pressure from existing soft fundamentals and from the 0.5 cent/lb decline in the January propylene contract.

The chart below shows price trends for acrylic acid.