OUTLOOK ’21 Europe oxo-alcohols bolstered by supply constraints into 2021

Jane Massingham

31-Dec-2020

LONDON (ICIS)–The European oxo-alcohol market is expecting a very challenging start to 2021 due to tight supply and ongoing strength in demand.

2020 finished on a far stronger note than many would have predicted, driven by the supply constraints and better-than-expected demand.

This pattern is set to continue into Q1 and potentially will be the main driving force for the first half of 2021, though H2 looks less certain.

FM DECLARATION, EXPORTS AND UPSTREAM SUPPLY
BASF, Europe’s largest n-butanol (NBA) manufacturer, declared force majeure on supplies of its NBA and isobutanol (IBA) products from its Ludwigshafen, Germany plant on 8 December.

NBA, IBA and 2-ethyl hexanol (2-EH) were already in a balanced to snug situation. Despite Europe being structurally oversupplied, the healthy return of demand in Q4 and the ongoing product flow of exports for NBA and 2-EH in particular, to the likes of Asia saw supplier inventories already running at low levels.

The closure of the LG Chem cracker at Yeosu in early November put a further pull on product moving to the region and while the oxo-alcohols unit is now running, it is said to be at very reduced rates and a restart of the cracker is currently planned for the end of January.

Given the FM from BASF, some other European producers may look to tweak 2-EH run rates to try push out some more NBA.

It is also expected that sellers will limit export volumes in order to try to cover the shortfall of product within Europe.

The supply of feedstock propylene is also a growing concern. It is not only the planned maintenance at crackers during the first half of 2021, but those that were postponed from 2020 due to the pandemic and on top of this, the refinery operations, which account for a little over 30% of European propylene, could see further reduction in propylene output in 2021.

There are currently no big maintenance programmes scheduled for oxo-alcohols units in 2021, the big five-yearly work was last carried out in 2018 by the three largest manufacturers and at present it is only the smaller routine work that will take place in the summer months.

DEMAND STRENGTH
Q4 proved to be much stronger for demand than many expected.

One buyer said: “We have genuinely higher downstream demand from coatings and adhesives. Q4 demand has been unprecedented and never seen a December like this before.”

Most sources anticipate this buying pattern will continue in January, with many orders already placed, though at the time of writing, the growing cases of coronavirus across Europe and the new strain in the UK were being closely monitored.

The impact as yet on demand patterns is unclear, but logistical disruptions, which are already a concern for some, could further pressurise the supply chain.

“Demand underneath is also really healthy and that is surprising with the situation we are in and the global economy and we are not out of the woods yet. The vaccines are coming, but are not here yet,” one supplier said when trying to look further into 2021.

The downstream pull from butyl acetate (butac) remains very strong and this tight market is also set to see good order levels in Q1.

For automotive, in October the global light vehicle market was marginally up, selling 91m units/year. However, recovery is still some way off, with global output not forecast to reach pre-pandemic global levels until Q4 2021 (Oxford Economics).

The downtream coatings sector remains strong with demand still stemming mostly from domestic housing rather than commercial. For those linked to packaging markets, there are some key positive trends from more online shopping and food deliveries.

Countries that have been most successful in containing the virus have had the sharpest rebound in sales. Many European countries re-imposed the national lockdown triggered by a renewed wave of coronavirus and surge in cases. As a result, demand could weaken as unemployment rises and working from home increases over the winter.

H2 2021 UNCERTAINTIES
While there is much optimism for the early part of 2021, various sources find it a challenge to give any concrete insight further forward into the latter part of the year.

“We are heavily contracted for 2021,” one producer commented, adding: “There will be the start of the coatings traditional season in Q2 and we expect a strong 2021, we would like it to be more stable and less stressful, but demand will be better than 2020.”

According to Oxford Economics the biggest GDP growth rebounds over the course of 2021 are expected to be in Europe. The robust production will be needed to meet the surge in demand for some products and the release of pent-up demand after lockdown, which has led to shortages of some goods.

All these above supply/demand factors have seen spot prices propel upwards at the end of 2020 returning to figures not seen since early 2019 for NBA.

There is certainly some concern surrounding the economic fallout from the pandemic, but whatever lies ahead, sources have been through the most challenging of years in 2020.

The ability to adjust to extenuating circumstances as a result of the global pandemic, and better-than-expected rebound, have left many sources more confident of improved business conditions in 2021 even if they will need to buckle up and prepare for a bumpy start on the supply front.

NBA is a solvent with more than half if its production used as an intermediate chemical in the production of butyl acrylates for paints, coatings and adhesives, or acetates and glycol ethers. 2-EH is used to make plasticizers. Key end markets include the construction, appliance and automotive industries.

Focus article by Jane Massingham

Additional reporting by Jincy Varghese

Follow Jane Massingham on twitter

Thumbnail picture: A DIY store in Bavaria. Residential home improvement has been a key driver of coatings demand during the pandemic. Picture source:Manfred Bail/imageBROKER/Shutterstock

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