EPCA’18: Europe Q4 MMA contract talks remain strained as buyers look for quick finish

Source: ICIS News

2018/10/11

VIENNA (ICIS)--European methyl methacrylate (MMA) fourth-quarter contract talks remain strained, with buyers pursuing a quick finish to discussions that are impacting demand in the region.

The battle between buyers and sellers over MMA contract prices was an important discussion point at this year’s European Petrochemical Association (EPCA) meeting in Vienna.

With many buyers targeting decreases for the contract, this is delaying buying throughout the chain as players hold off for lower pricing.

However, while buyers are looking for a quick settlement, they are also targeting significant decreases which could prevent this.

Targets between double-to-triple digit decreases have been heard from buyers, with the extent dependent on the starting point and the player in question.

Sellers, however, do not share this vision, with some looking for a rollover or minor decrease in prices, seeing no justification for a significant change in pricing based on current fundamentals.

The argument of feedstock increases is becoming part of MMA contract negotiations again, in a market that has been driven by extreme supply/demand fundamentals since 2016.

While MMA players struggle to agree on prices, it is undeniable that supply has improved globally, with the European market moving into a balanced position for the second half of the year.

The start-up of the Saudi Methacrylates (SAMAC) plant in the Middle East has boosted the global supply level, with the facility reaching commercial operations in April 2018.

The facility can produce up to 250,000 tonnes/year of MMA, and is a joint venture (JV) between Mitsubishi Chemical (MCC) and SABIC.

There is continued talk in the market of the nature of the JV agreement, with many sources stating that MCC controls the majority share at this time, with Sabic having between 20,000-30,000 tonnes for the year.

MCC has been using the facility to support other assets globally, with a number of shutdowns taking place this year for the producer, notably the Cassel, UK stoppage in March.

“Alpha II is helping to provide some much needed support to the global market that was not present in 2017 prior to the commissioning of the plant,” a sources from the company recently said.

The introduction of new Middle Eastern material in Europe has added some downward pressure to prices, with competitive offers on the spot prices as sellers look to establish market share.

Turnarounds continue globally for the rest of the year, with a high number of stoppages in Asia.

Supply in the US remains tight, again linked to planned and unplanned stoppages and also surprisingly high coatings demand.

Coatings producers in the US have reported growth between 5.5-6%, with robust growth expected for the next five years.

However, given the current prices in the US, it is not attracting additional volumes from traders, with many unable to make exports work.

Many traders in Europe said they were trying to hold their nerve, as pressure from buyers mounts for lower spot prices.

European spot sellers are in a difficult position, with pressure from lower priced Middle Eastern product, hand-to-mouth buying, destocking, wavering coatings demand, and the approaching year end all set against the desire to make a profit on the material they purchased at a high price.

However, as purchasers gradually gain more control after two years of supply chaos, the well of sympathy from buyers is pretty shallow.

Spot activity is expected to increase for 2019, with many buyers this year increasing contract commitments in order to mitigate risk of further supply issues.

With supply and reliability improving throughout the year, this is expected to translate into more spot activity for the year to come as buyers gain confidence again.

However, supply is still a concern longer term for MMA buyers, in a market not expecting major new capacity until 2023 and with continued growth.

“Next to Brexit, supply is still the main MMA concern. 2017 still lives long in the memory,” said one buyer.

Demand in Europe has been mixed in recent months, with destocking from the plastics sector and deflated confidence from coatings impacting consumption.

However this is not the case for MMA globally, with growth of 5% seen in Asia this year from the light guide panels sector. Double-digit growth has also been observed in India from the emulsions sector.

In Europe, downstream demand from the automotive sector continues to grow, albeit at a lower level than expected for the year.

Going forward, there are opportunities for the polymethyl methacrylate (PMMA) market in the automotive sector, especially given the shift to lighter vehicles.

While the topic of recycling poses a huge challenge to the general chemicals market, many MMA players see this as an area of opportunity and growth for the sector.

As there is already the option to chemically recycle PMMA by depolymerisation back into MMA, the market feels ready to meet the challenge of a ‘circular economy’.

Shorter term, contract negotiations and the profitability of the value chain will continue to dominate discussions.

There is a consensus that the supply shortage of 2017 has damaged growth opportunities longer term for the industry, but it is unclear to what extent.

Pressure from lower polycarbonate (PC) prices also add to downward pressure in the plastics market, with PMMA prices traditionally lower than PC.

In the sheets sector, some substitutions have taken place, with a shift to PC and also polyethylene terephthalate-glycol (PET-G).

This is not the case in the coatings sector, with reformulation estimated to take up to five years as well as an increase in demand for acrylate coatings because of their product properties.

With prices remaining at a high level since the shortage of last year, buyers continue to pursue decreases for both contract and spot, with downstream margins squeezed and supply and demand fundamentals improved.

A heavy maintenance schedule until the end of the year may dampen some of this ambition, as some sellers remain unyielding to downstream pressure.

Contract talks for the month and the quarter will continue for the next few weeks, or until players can reach a compromise.

Focus article by Katherine Sale.