OUTLOOK '19: Europe BDO demand expectations subdued amid global uncertainties

Source: ICIS News

2018/12/21

LONDON (ICIS)--European butanediol (BDO) players are adopting a wait-and-see approach to 2019 market dynamics, with previous optimism for market growth dwindling as uncertainty festered in late 2018.

Concerns surrounding the US-China trade war, Brexit, the automotive sector and the European economy have dampened expectations for the BDO market in 2019.

“The outlook, on the whole, people are not as optimistic as they used to be,” said a source.

Though market sentiment is slightly more subdued for 2019, some sellers expect demand to increase in the first quarter. High de-stocking in December may leave consumers short of product in January, as logistics issues are expected to continue.

Rhine water levels remain a concern for European players. Although conditions improved in December, if the levels are not sustained in January production rates will decrease and deliveries will be delayed.

“People being a bit more sceptical will translate to shortages in Q1,” said one producer.

At present, increasing supply length and lower demand in European and Asian BDO are causing a global downtrend.

Asian BDO prices have softened for domestic product and exports, which continue to enter the European market.

This, alongside steady European production in 2018, was able to satisfy demand, leading to rollovers in both the third- and fourth-quarter contracts.

This nearly uninterrupted supply level has left the market in a healthy position for 2019 should demand remain balanced, as it did for most of 2018.

However, lengthy global supply conditions are driving buyers’ targets for double- and triple-digit reductions in the European first-quarter BDO contract.

“Overseas [prices] have already moved down… Local suppliers, I expect it will happen the same”, said one buyer.

Demand expectations for 2019 are mixed, as consumer hesitancy in late 2018 softened the prior bullish market sentiment.

Growth expectations varied between key players, with some expecting a similar rate to GDP while others were more optimistic, suggesting up to 4-6% depending on the application.

“Overall everyone expects 2019 is going to be more or less lower than 2018… 2018 was an extremely great year, far better than everyone expected. Especially in engineering plastics. If it stays on the 2018 level then that would be extremely good news,” said a source.

Thermoplastic polyurethanes (TPU), spandex, tetrahydrofuran (THF) and polybutylene terephthalate (PBT) show consistently high growth. Engineering plastics are expected to remain dominant once demand from the automotive industry increases with the move to hybrid and electric cars.

Global PBT expansions in recent years indicate a greater need for BDO; however, reinvestment in BDO remains to be seen.

In the second quarter of 2019, Ashland plans to sell its composites division and Marl, Germany, BDO plant to INEOS for $1.1bn, subject to regulatory approvals.

Sources note it is too early to judge how this will impact the future of the BDO market and what they will do with this business.

Ashland’s role in the European market is expected to decrease, with the producer staying focused on the US market. Output from Marl is not expected to change through the handover.

Though market sentiment is subdued for 2019, the first quarter will be influential in determining whether sources’ concerns are justified or misplaced.

Demand exceeded sellers’ expectations in 2018, with market growth surpassing the predicted 4-8% and reaching double-digit figures.

Optimism for 2019 remained strong in the first half (H1) of 2018, but soon took a downturn as changes in automobile legislation led to fewer sales in the automotive industry in the third quarter.

This, along with wider macroeconomic uncertainties, led to a slowdown in BDO demand in the fourth quarter.

BDO is a chemical intermediate used in the production of high performance polymers, solvents and fine chemicals.

Pictured: New cars; archive image. Weaker automobile production in Europe has dampened sentiment in the BDO market
Picture source: Chameleons Eye/REX/Shutterstock

Focus article by Eashani Chavda