OUTLOOK ’19: Long supply, low import prices to drive US epoxy market

HOUSTON (ICIS)–Long supply and low import prices are expected to be the main drivers for US epoxy resin at the start of 2019.

US epoxy contract prices have been steady-to-soft since May. Prices have experienced downward pressure due to length in the market, along with the presence of competitively priced imports.

Feedstock bisphenol-A (BPA) and epichlorohydrin (ECH) costs have also fallen globally due to rising inventory levels and a slump in downstream demand, prompting a cutback in production.

Meanwhile, China’s output of key petrochemicals is on the rise amid a slew of new capacities and softer environmental restrictions. The country eased some environmental measures, which will end in March 2019, as China looks to shore up its economy during a trade war with the US.

As a result, domestic epoxy pricing is likely to continue facing soft sentiment for at least the first quarter of 2019, as availability of material remains ample and consumption is slow on seasonality amid bearish global economic fundamentals.

Some buyers could become cautious amid increasing concerns of waning downstream demand, although they appear to be taking a wait-and-see approach. They are likely to remain on the sidelines as they monitor a downtrend in prices, along with any headwinds in demand.

A major source of increased demand could come if global crude values rise and production increases. Otherwise, demand will receive a boost over the spring/summer when the peak paints and coatings season takes place.

Epoxy resins have many downstream applications, including coatings, construction and automotive.

Demand for solid epoxy from the oil and gas sector is not expected to decline right away despite the slump in crude prices, as pipeline capacity in the US is lagging.

Spot prices in Asia have been moving down due to healthy supply, sluggish demand, looser environmental regulations and lower feedstock prices. This has resulted in lower prices for imported Asian material, with producers there keen to export cargoes abroad, where economics are more favourable.

Some suppliers in Asia could aggressively push material into the US, resulting in downward pressure on epoxy prices, keeping enquiries for imports strong from buyers.

Sentiment regarding the long-term picture is mixed. Some sources feel demand could soften amid sharp declines in crude prices, rising interest rates, the ongoing trade war and a deteriorating global economic outlook.

The International Monetary Fund (IMF) predicts that the US GDP growth rate will be 2.5% in 2019, down from the projected GDP growth rate of 2.9% in 2018.

But other sources feel demand will be healthy after a global rebound or that concerns about a decline in consumption are premature as operating fundamentals are solid.

The upcoming turnaround season at the end of the first quarter and beginning of the second quarter in Asia and Europe for feedstocks BPA and ECH could place upward pressure on the epoxy markets.

Major US epoxy resin producers include Hexion, Huntsman and Olin.

Focus article by Tarun Raizada

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