OUTLOOK ’13: Europe solvents players showing caution

By Matt Tudball

LONDON (ICIS)–Players in the European solvents market are being cautious with their predictions for 2013, with the majority believing price and demand patterns for isopropanol (IPA), methyl ethyl ketone (MEK) and methyl isobutyl ketone (MIBK) will be similar to those of 2012.

In the European ethyl acetate (etac), butyl acetate (butac), and glycol ethers markets, the slow demand currently seen in the fourth-quarter is expected to extend into the first quarter next year, apart for a brief uptick in January on re-stocking.

In late December, spot MEK was trading at €1,220-1,270/tonne ($1,605-1671/tonne) FD (free delivered) NWE (northwest Europe), while etac was being sold at €860-890/tonne FD NWE.

Market players will be keeping a keen eye on changes to major indicators of pan-European economic output and sentiment during the first quarter. This would help determine, and plan for, any upturn in the solvents market during the key second and third quarters of 2013.

Traditionally, demand for solvents from downstream paints and coatings sectors have picked up in the approach to the summer months.

A solvents buyer from a major paints and coatings company said it expects a decline in demand of 5% next year in the industrial coatings sector, and a 10% decline in the automotive coatings sector.

For IPA, feedstock costs in the first quarter of 2013 will largely determine price direction.

“I wouldn’t be surprised if feedstock [propylene] producers will try and increase prices in January,” an IPA distributor said, adding that if that was the case, IPA prices would have to follow suit.

Feedstock propylene prices are likely to remain firm, with a large cracker turnaround schedule towards the end of quarter one. Any increase in demand for propylene before or during this period could see feedstock prices rise unexpectedly, putting pressure on IPA producers to implement price hikes to maintain margins.

“I don’t know what feedstocks will do. At the start of the New Year, all the producers try and increase prices,” a second distributor said.

Any pick up in demand in January amongst IPA, MEK and MIBK consumers is likely to be caused by restocking activity. Consumers have monitored their stock levels closely throughout quarter four, keeping inventories to a minimum.

Poor macroeconomic conditions have had a negative impact on demand across the majority of solvents. IPA, MEK and MIBK are used in a wide range of end-use markets, all of which have seen demand, and consumer purchasing confidence, drop throughout 2012.

“MEK and MIBK demand will be similar to 2012. January [2013] will not be the best January compared to last year,” a distributor said.

MIBK in particular has been a very quiet market for most of the second half of 2012. MIBK usage is linked, amongst other areas, to the automotive industry where it is used in the production of car tyres.

Overall, market sentiment amongst IPA, MEK and MIBK players in terms of demand patterns is one of ‘wait and see’. If prices rise, as expected by the majority of players, then the first quarter would be the most likely period to see demand start to increase.

A major solvents producer said a key indicator to watch would be the performance of European car makers. Automotive coatings are a major downstream market for solvents, especially butac.

“German car companies’ sales volumes are picking up from last month due to exports,” the producer remarked.

Etac supply in Europe is structurally short as it is limited to one major local producer, and consequently regular imports from India, Brazil, South Africa and Mexico are expected to continue next year.

Occasional imports from Russia are likely to punctuate the butac market, but major volumes are likely to come from within the northwest European region.

The glycol ethers market – suffering from a supply overhang due to a pause in export demand from Asia – will see a major player cut back on production as it concentrates on the more lucrative upstream ethylene oxide (EO) market.

Shell Chemicals Europe will stop glycol ethers production from its plant in Pernis, the Netherlands during 2013.

However, the company said it has no plans to stop its production of propylene glycol ethers.

Supply and demand for propylene glycol ethers is better balanced compared to that of other solvents, and this is expected to stay stable.

($1 = €0.76)