Europe chemicals buyers shift from contractual volumes to spot market on crest of falling demand

Morgan Condon

18-Aug-2022

LONDON (ICIS)–As economic indicators continue to warn of a downturn towards the end of 2022, Europe’s chemicals markets are adjusting buying habits in a bid to shelter from the crash.

The pressure of high-cost materials has led to a pivot in fundamentals, as buyers are walking away from contracted volumes in favour of spot material.

Supply chain issues unfolding in the wake of the pandemic have not been resolved – if anything, they have exacerbated by China’s zero-COVID policy causing mass lockdowns in the country, and the war in Ukraine disrupting trade flows.

Where demand had previously been kept taut, soaring prices and the ever-nearer prospect of a recession has disrupted the usual patter of business negotiations for the chemicals sector.

“We are unlikely to even reach contract minimum in 2022. Suppliers ask about mitigation plan and if we buy more next year,” said one acrylonitrile (ACN) buyer in response to the change.

As discussions of a temporary move to monthly contracts instead of quarterly settlements continue, increased prices are challenging consumption in the melamine market.

One supplier advised that some customers took smaller volumes for August, while others didn’t take volume at all, and this view was echoed by consumers.

“We stepped out of the market because of low demand in the third quarter, we live from stock,” said one melamine buyer.

The situation has also permeated European base oils fundamentals, with some producers commenting on oversupply in what has been a generally balanced market.

Buying tracked an uptick ahead of summer, and now with the seasonal lull, high inventories and rising prices, suppliers have noted that customers have postponed picking up their material.

“We see a dramatic situation on the market. No-one is buying on domestic. It’s vacation season and a lot of product is available,” said one producer.

One phthalic anhydride (PA) producer also advised that the impact could be seasonal, with European buyers using up their stocks ahead of the typical summer slowdown.

This is not guaranteed, however, and a spike in cheap imports would drive down price negotiations for annual contracts.

“It’s really just the spot market which is concerning… Customers had a real advantage compared to spot players [this year] but if this changes now, then certainly it’s going to leave a bad impression,” the PA producer said.

“It might put pressure on the formula for the contracts. Nowadays I don’t even want to look so far away as the market is so volatile.”

The possibility of more competitive material coming from other regions is also affecting sentiment in European epoxy resins, with one non-integrated producer advising that the market is currently very weak.

“We’re working only on contracts [for feedstocks] in which we have cut off volumes in agreement with our suppliers. Everybody in Europe knows that much cheaper transport coming from Asia will have an influence on European production,” they said.

While sentiment suggests that demand could be set to nosedive, the silver lining is that this could provide more long-term balance to market fundamentals, providing constricted supply chains with some relief.

Front page picture source: imageBROKER/Shutterstock

Focus article by Morgan Condon

Additional reporting by Anne-Sophie Briant-Vaghela, Eashani Chavda, Heidi Finch, Melissa Hurley and Jane Massingham

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