EPCA '19: Europe BDO poor demand to persist on weak auto sales

Author: Eashani Chavda

2019/10/06

LONDON (ICIS)--Low demand in the European butanediol (BDO) market is expected to persist into 2020 if automotive sales do not improve.

Downstream polybutylene terephthalate (PBT) demand remains weak and bearishness is likely to continue in the fourth quarter, as year-end destocking takes place.

Alongside tepid demand, ample global BDO supply is expected to continue with high inventories across the board.

Weak demand and lengthy supply fundamentals are key factors considered in the ongoing fourth-quarter contract negotiations.

At present, contract talks are progressing at a slow pace with settlements likely to conclude in late October, after this year’s European Petrochemical Association (EPCA) annual conference.

This year’s market downturn and 2020 demand expectations are likely to be key talking points at the EPCA.

AUTOMOTIVE SALES REMAIN WEAK
Activity in the automotive sector remains weaker with low consumer confidence persisting into late 2019.

EU passenger car registrations between January-August have fallen by 3.2% year on year, according to the European Automobile Manufacturers Association (ACEA).

Over the first half of the year, players were optimistic that consumer confidence would return in the second half, but this has not been the case.

The downtrend continued with depressed buying sentiment leading EU passenger car registrations to decline month on month between June and August.

“The trend will be downward in Q4 and, for me, even 2020 will be on that level because demand for derivatives of BDO like PBT is quite low. Automotive is not expected to rebound next year,” a BDO buyer said.

PRODUCERS FACE MARGIN SQUEEZE
For BDO producers, margins are the main concern for the Q4 negotiations and for 2020.

European BDO contract prices fell by €270/tonne over the last three quarters, with sellers wondering when the bottom of the market will be hit.

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“Even the Chinese are balking at the prices in the market in China and Europe,” a European producer said.

“There comes a point where even the Chinese have to turn the wick down on their plants and say it’s not worth selling.”

Chinese BDO capacity has been influential to European market dynamics and pricing, given healthy availability and competitiveness of imports.

*ICIS Supply and Demand Database

Chinese imports reached their peak in the second quarter, with 2,744 tonnes shipped to European players, according to ICIS data.

In the third quarter there was a steady decline in Chinese imports, with demand falling further and import prices becoming less attractive.

The long supply situation in Asia has eased to some extent as Asia's plants production has fallen significantly in the past few months, with demand sluggish throughout the year due to global economic uncertainties.

Ongoing US-China trade tensions, coupled with the depreciation of Asian currencies against the US dollar, have dampened buying appetite for imports.

In China, the average BDO plant operating rate in the week ended 30 September stayed at 49.6% for a second week, but down from 55.9% in mid-September, ICIS data showed.

The average run rate of BDO plants in China has hovered at 50-60% for most part of July to September.

Moreover, the Chinese market has been subdued because of the week-long National Day holiday on 1-7 October.

In Taiwan, Nan Ya Plastics shut its 60,000 tonne/year Mailiao BDO plant in September due to poor margins, while its 40,000 tonne/year plant at the site was shut since April earlier in the year.

Dairen Chemical Corp’s 130,000 tonne/year Mailiao unit is offline from early September to early October for a turnaround.

The company has a separate 280,000 tonne/year unit in Da Fa, which is running normally.

In South Korea, one of the country’s two BDO producers has shut its plant since July this year because of squeezed margins, and may only restart the unit when market conditions improve, a company source said.

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Prices in the Chinese domestic market have been stable to firm in recent months, reinforcing some sellers’ expectations that the bottom of the market has been reached.

Asian market dynamics will remain influential in 2020, with many European sellers waiting for a price rebound.

Imports from the Middle East are also being monitored closely following the 14 September attacks on Saudi Arabia’s oil and gas facilities.

There was speculation that production at International Diol Co’s (IDC) 75,000 tonne/year BDO plant in Al Jubail may have been disrupted.

The producer declined to comment on its operations though a trader stated its BDO supply remained stable in early October.

Players expect possible impacts from feedstock disruption at the site could be seen in the coming months.

Overall Q4 demand in Asia is expected to stay largely stagnant, although market players in India were slightly more optimistic for demand to pick up in India by late October, post-Monsoon, as well as the onset of the festive period in the country.

Producers in the region will likely continue to run at reduced rates, which should help to rectify the supply-demand imbalance in the BDO market to a certain extent.

The European market is expected to remain bearish, with weak downstream demand and destocking activities commencing towards the end of the year.

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

The EPCA annual meeting runs in Berlin on 6-9 October.

Pictured: A car factory in France; archive image
Source: Sipa/Shutterstock

Focus article by Eashani Chavda and Matthew Chong

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