Chain reaction as VAM tightens alarmingly on acetic acid outages

Source: ECN

2018/05/25

Tightness in acetic acid led Dow Chemical to declare global FM on VAM citing issues at an external raw material supplier

Global tightness in acetic acid is having a clear knock-on effect on vinyl acetate monomer (VAM), the widely used intermediate for essential products for paints and coatings and adhesives manufacturers.

Consumers potentially face a torrid time of it as VAM supply is crimped. Prices look set to put pressure on the downstream during the peak buying season, which also coincides with the peak maintenance period for VAM plants worldwide.

DOW FORCE MAJEURE

Towards the end of the week ending 18 May, Dow Chemical declared a global force majeure on VAM citing production issues at an external raw material supplier. Dow said the force majeure would last “approximately two months”.

Although not a major global player, the Dow position takes further VAM capacity out of an already tight market.

The force majeure declaration is expected to push up domestic prices in the coming months, with a tight acetic acid market providing further support.

The Dow declaration has been attributed to a force majeure declared by BP in late April for acetic acid from a plant in Texas City, Texas.

That force majeure declaration, stemmed in turn from the expected delay in repairs of critical equipment’s by the plant’s carbon monoxide supplier.

ICIS reported that US VAM export prices had risen by $100/tonne because of the Dow force majeure. A producer said prices had jumped significantly over the previous two weeks on US VAM export prices and acetic acid because of the situation at the production units of both companies.

VAM prices in Asia-Pacific were at their highest since 2014 on reduced output and plant turnarounds. Both acetic acid and ethylene prices were higher.

Supply has been described as “crazy tight” and could well underpin Asia prices for some time.

Before the Dow force majeure declaration, buyers were widely anticipating that supply tightness would be relieved around the middle of June but their attitudes now have changed.

CELANESE MAINTENANCE

The ICIS Live Supply Disruption Tracker for VAM globally shows a Celanese plant in China coming off line for maintenance and not due back until around that time.

Buyers are holding back on purchases because of high prices and it is believed that VAM producers in Asia are focused on their long-term customers and on captive consumption.

Acetic acid is much tighter in China, due in part to the crackdown on environmental pollution and shutdowns are expected to propel much higher operating rates for the remaining facilities.

In China, purified terephthalic acid (PTA) accounts for around 21% of acetic acid consumption with vinyl acetate monomer (VAM) accounting for 20%.

The impact is felt across the acetyls chain, which saw a huge increase in capacity from 2008 to 2011, specially in China.

Major acetyls producer Celanese said recently that demand growth which had historically been in the 2-3% range is now up at around 3-4%.

EUROPE IN A FIX

This position generally leaves Europe in a fix.

Back in 2013, the closure of close to 500,000 tonnes/year of VAM capacity effectively reduced regional output by a half. The impact was felt the following year when VAM prices rose steeply on reduced availability from the US and elsewhere.

Structurally, the European VAM market is no different now. There are two producers in Germany – Wacker Chemie and Celanese – and effectively no local regional merchant market supplier. The reliance on imports puts consumers in a difficult position.

The European VAM market is tight now – although some buyers believe it is less so than suppliers have claimed.

Availability is a critical issue as is the driving force behind this situation, the tightness of feedstock acetic acid.

The surging cost of VAM production due to the lack of acetic acid is becoming the dominant factor in VAM pricing.

As of 18 May, the balance of the duty-free import quota for VAM had been reduced to just over 27,000 tonnes. This suggested that it might well run out completely by early June.

Addition reporting by Helen Lee, Lane Kelley, Peter Gerrard and Joseph Chang