Market Outlook: New MMA capacity in Middle East could change global trade flows from 2017

Warming Images/REX/Shutterstock

The global methyl methacrylate (MMA) community is starting to look towards 2017, questioning the impact on global trade flows of new capacities scheduled to come on stream in the Middle East.

Global MMA production is dominated by Asia, followed by the Americas and Europe.

But upcoming projects in the Middle East would put it firmly on the MMA map, with domestic consumption not sufficient to use the total capacity, meaning that it will become an exporter.

The question is to where and what that will mean for regional supply balances.

A NEW YEAR, A NEW MMA COUNTRY

With 2017 fast approaching it brings with it the introduction of Saudi Arabia into the global MMA market.

Mitsubishi Rayon, parent company of MMA major Lucite International, is scheduled to come onstream with its joint venture with SABIC of a 250,000 tonne/year MMA facility in 2017.

Petro Rabigh, the joint venture between Japan’s Sumitomo Chemical and state-owned energy firm Saudi Aramco, will also have a new MMA plant next year with capacity of 90,000 tonnes/year of MMA. Will future MMA demand absorb the new capacity? Some European MMA players expect future demand to increase at a conservative minimum of 3%, on par with global GDP expectations.

However others see future MMA demand as above GDP, especially because of strong performances in derivative downstream industries such as the automotive sector.

“MMA demand has a strong track record of growing at rates in excess of GDP, locally and globally,” said an MMA producer. “There are a number of higher growth and new application areas and developing markets where MMA (and PMMA) is focusing and it is anticipated that this will continue to provide the ‘above GDP’ demand growth globally that has been seen in the past.”

AUTOMOTIVE SECTOR THE SOLUTION?

Although automotive demand continues to be the shining star of the downstream polymethyl methacrylate (PMMA) market, sellers in that sector also expect positive growth for other downstream uses such as construction. Construction is also an end use for MMA’s other application, paints and coatings. However, despite positive demand forecasts, market players do not expect demand to move enough to absorb the new supply in the market.

It is because of this that there are expectations for global operating rates, including those in Europe, to decrease once the new capacity comes on stream.

There is also talk in the market, as there has been for a number of years, of potential rationalisation.

China’s Sinochem Quanzhou Petrochemical is also expected to start up a petrochemical complex at Quanzhou, Fujian province, in the first half of 2018, with 100,000 tonne/year MMA capacity.

Once the new capacity is on stream in Saudi Arabia the country will jump to being the 7th largest producer of methyl methacrylate in the world.

EUROPE NOW AND THEN?

The European MMA market is now well on the way to being tight, amid planned and unplanned production stoppages, low inventories and a decrease in imported material. Europe is a net importer of methyl methacrylate, with product coming in from Asia, the US and Brazil.

Firming prices in Asia have resulted in a drop in volumes coming from that region, and excess material from other regions being diverted to Asia in pursuit of higher netbacks. The steep fall in methyl methacrylate prices in the fourth quarter, with contracts dropping by €220/tonne, meant that Europe was no longer as attractive for suppliers from outside the region.

The combination of prolonged, solid demand from both the plastics and coatings sectors, low inventories for European producers and a drop in imports has highlighted how the European market can easily swing towards a tight supply situation.

FATE OF EUROPE SUPPLY BALANCE

Once the new capacity is onstream, a number of market participants, particularly on the buy side, expect Europe to move towards a balanced-to-long supply situation.

One buyer said that unless there are closures in Europe, it expects the new capacity in Saudi Arabia to push the European market supply long.

Another buyer said it expected the European market to become oversupplied, adding producers involved in the Middle Eastern joint ventures will have a separate sales and strategy teams depending on the region.

However, with Europe requiring imports to remain balanced, some players expect the new capacity may just result in a change of origin of the material.

“Europe requires imports of MMA to satisfy demand in the region and the new capacity will allow this to be maintained, one supplier said. The origin of these imports may be altered as a result of the new capacity coming on line in KSA [Saudi Arabia] in 2017.” “Why would you buy material all the way from Singapore when you could get it from Saudi Arabia, which is much closer?” asked a PMMA seller.

IMPACT ON GLOBAL MARKET SHARES

There is some expectation that the new Middle Eastern material will replace European material in certain areas, particularly in Turkey.

It is because of the potential shift in trade flows and also with new players coming into the market that existing MMA producers, in all regions, are said to be working hard to secure volumes and contracts from 2017 onwards.

One methyl methacrylate buyer said it has been contacted by a number of producers, with some looking to confirm contracts for volumes up to 2020.

WHAT ABOUT DOWNSTREAM?

Although the upstream methyl methacrylate market has become tighter in recent months, the downstream PMMA market remains well supplied and so it remains unclear what the new capacity will do to the already heavy supply balance.

The robust performance from the automotive sector, combined with continued rumours of potential European closures, are keeping some suppliers hopeful that the market will not become oversupplied.

This is particularly key in a market, such as the downstream PMMA sector that has already seen significant pressure in recent years, following overcapacity in Asia.

The huge expansion of PMMA production in Asia was based on estimations in part linked to the electronics sector and the use of PMMA in flat-screen televisions.

However, because of advances in technology, the average thickness of PMMA light-guide panels in television screens has been reduced to 3mm from 8mm.

This considerable reduction in thickness has resulted in an oversupply that has had a knock-on impact on pricing in other regions. Could the ME capacity further exacerbate Asian oversupply?

Overcapacity in Asia could further be exacerbated by Asian material being displaced by the new Middle Eastern product, particularly in Europe.

The other key question is given the lower cost base in the Middle East at what level will the new material be priced.

Import duty and transport costs will be applied to both MMA and PMMA exports from the Middle East to Europe.

However, the increase in gas prices in Saudi Arabia in the last 12 months have also meant that sellers are quick to highlight that the cost base is less competitive than it was when the new capacity was originally announced.

While it is possible that Saudi Arabia will not be as competitive, there are still questions about future demand and whether a global GDP growth of 3% is actually achievable, considering the recent disappointing GDP performance in the US.

The only thing that the industry can know for sure is that at least for 2016 the European MMA market will remain snug.