EPCA ’19: Uncertainty reigns for global MMA market after two years of price declines

LONDON (ICIS)–It has been a challenging year for global methyl methacrylate (MMA) producers marked with pricing declines, lower operating rates, and continued depressed demand.

Oversupply and demand uncertainty have dominated the market this year, with prices falling in all regions, as sellers struggle to find a home for product.

Those two issues are likely to dominate players’ conversations at this year’s European Petrochemicals Association (EPCA) annual conference.

The past few years have been a turbulent time for the global MMA market, moving from historic highs in 2017 and crippling supply shortages to the market being awash with material throughout 2019.

Currently, there are cries from producers over margins, and players on both sides of the market question how long the pricing drops can continue.

How long is there before the market finds itself in the all too familiar situation of unhealthy margins, when producers start to question investments in facilities?

Supply has been the driving factor in recent years for MMA, in a sector that has enjoyed continued growth, in some applications and regions above GPD.

However, demand started deteriorating in 2018 and into 2019, with the automotive sector the first victim to the global slowdown.

AUTOMOTIVE: THE SHINING STAR THAT BURNT OUT
Much like the MMA, the automotive sector has been on a rollercoaster of highs and lows in the last five years.

It has moved from the end-user application with higher-than-expected demand, consumption above GDP growth, and an area of endless opportunity given the pursuit to lighter weight vehicles.

Back in 2016, a polymethyl methacrylate (PMMA) market player described the automotive sector as the “shining light”.

However, the light that shined so bright in 2016 and 2017 burnt out in 2018, and the market has since steadily declined.

The automotive sector is particularly important for MMA, with it a key application for both PMMA and also paints/coatings.

There is little optimism from automotive players going forward, with some tier-one manufactures expecting no recovery until the second half of 2020.

PMMA producers are already forecasting flat demand from the sector for the whole of next year, with hopes that consumption does not fall even lower than this year.

NO APPLICATION IMMUNE TO DEMAND DECAY
While the automotive sector was the first to fall, the demand decline did not stop there, with drops from the majority of end-user applications.

Demand from the medical sector remained steady, although as this is a market that does not post large fluctuations demand-wise, it is not an indicator of the general strength of the sector.

Profit expectations have been reassessed by a number of the key coatings and paints companies, as 2019 progressed it became clear that previous expectations were beyond the realms of reality.

This is not just a sign of weakness in MMA, with poor demand across the wider petrochemical markets, and some countries already showing evidence of a recession, with particular concerns over Germany.

However, MMA demand has been impacted by purchasing strategies this year, with no consumers wanting to over-commit to volumes in a falling market.

It has also had to contend with competition from other products, specifically for the polymer sheet market.

Polycarbonate (PC) prices have hit a 10-year low in 2019, with some players moving away from pure acrylic sheets and using other products as a carrier to reduce the overall costs.

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Polyethylene terephthalate-glycol (PET-G), styrene-acrylonitrile (SAN), or acrylonitrile-butadiene-styrene (ABS) have also made gains from the PMMA market, with prices dropping at a quick enough rate to remain competitive for certain applications.

The pressure from competition has eased in recent months, with PMMA resin available at the same level as MMA spot from Asian producers, highlighting the market has already crossed the barrier into negative margins.

With Asian PMMA producers looking to offload heavy inventory into the European market, this has also reduced demand for MMA from local sellers.

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INVESTMENT IMPROVES PRODUCTION RELIABILITY
Poor consumption is only one element that has tipped the global supply and demand balance, with improved plant reliability and new capacities in Asia and the Middle East also stressing the scale.

Following the sharp increase in margins between 2016-2017, MMA producers invested heavily in facilities, with the historically high prices linked to a shortage of supply, driven from unplanned outages.

In March 2018, for example, Lucite International carried out the largest overhaul in its history at its Cassel site in Teesside, costing £17 million ($20 million), at a facility that had been plagued by unplanned issues in the past.

The MMA market was no stranger to production outages, in fact consumers in the sector became experts in manoeuvring planned and unplanned stoppages in recent years.

The investments have significantly improved the reliability this year, with the vast majority of stoppages or production cuts for commercial reasons in 2019, not technical issues.

GLOBAL COMPETITION
Trade flows have also shifted, linked to new capacities in Saudi Arabia, an additional 340,000 tonnes/year, and three smaller plants in China.

Free trade agreements (FTA) between the EU and Japan, as well as one pending with Singapore, will mark a new era in the European market, with competition increasing for local sellers.

A number of distributors are looking to invest in additional chemical storage in the region, with it more attractive to bring material from Asia because of the FTAs.

Soruces in the market have also said Sumitomo may be looking to set up a new terminal at its Petro Rabigh facility in Saudi Arabia to move regular volumes to Europe.

There has been an increase in Middle Eastern product in the Europe this year, with the entrance of SABIC into the global MMA market in a joint venture with Mitsubishi Chemical (MCC), owner of Lucite International.

MCC has also used its facility in Saudi Arabia as a strategic base, moving product to Europe during times of maintenance or lower rates at its Cassel, UK facility.

PRICE FALLS MODERATE
After 18 consecutive months of pricing drops for the European monthly contracts, and two years of declines in spot prices, players are questioning how long this situation can go for.

More importantly, how low can prices go until there is another wave of unplanned issues linked to lack of investment, inevitably leading to higher prices?

Has the market learnt the lessons of the impact of negative margins, or will the next five years for the business be defined by the same dizzying heights and plunging lows of recent history?

Although prices in China have been described as close to cash margins, there is still a way to go in Europe.

For fourth-quarter contracts, both buyers and sellers are expecting further decreases, although the expectation over the magnitude differs considerably.

In recent months, the momentum for pricing drops has slowed, and decreases have moved to low-to-mid double-digit declines, as opposed to mid-to-high.

Lower operating rates, lengthy maintenance stops, and some unplanned hiccups have reduced global inventory for producers.

The impact of this has been evident in China, with prices increasing since July on the back of higher feedstock prices, unplanned stoppages, weather issues, and a reduction in stocks.

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This may be the early signs of a change in the market, with the Asian markets normally reacting first to any shift in global supply/demand dynamics.

However, this momentum maybe quashed by the introduction of a new plant in China, fresh capacity in a market that has been oversupplied for over a year.

With a pessimistic demand outlook spilling into 2020, the challenging dynamics are set to continue, with the wider uncertainty expected to be the main topic of this year’s EPCA.

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

Top picture source: Hans Lippert/imageBROKER/Shutterstock 

By Katherine Sale