OUTLOOK ’14: Asia’s VAM prices to recover on ease in oversupply

By Helen Lee

SINGAPORE (ICIS)–Spot prices of vinyl acetate monomer (VAM) in Asia are poised for a recovery in the first half of 2014, aided by an ease in oversupply conditions amid curtailed global VAM production, industry sources said.

Asia’s VAM spot prices were largely trading sideways for the most part of 2013 as supply outstripped demand following the start-up of a new VAM plant in southeast Asia.

Taiwan’s Dairen Chemical Corp started commercial production at its new 350,000 tonne/year VAM plant on Jurong Island, Singapore, in May 2013.

Meanwhile in China, the anticipated September 2013 start-up of a new 450,000 tonne/year VAM plant contributed to an overall cautious buying sentiment.

Ningxia Younglight Energy Chemical was scheduled to start trial operations at its 450,000 tonne/year VAM plant at Yinchuan, Ningxia province, in September.

However, this has been delayed to January 2014 because of delays in the mechanical completion of the plant as well as delays in securing certification and permits.

By the fourth quarter of 2013, however, escalating upstream methanol and acetic acid values as well as steady-to-firm ethylene feedstock costs prompted major VAM producers to eye a $20-50/tonne (€14.60-36.50/tonne) hike on December shipments, at $1,050/tonne CFR (cost & freight) Asia.

Largely unchanged demand and supply fundamentals, on the other hand, hampered producers’ attempts to raise their prices.

VAM prices were resultantly steady in most parts of Asia.

For January 2014 VAM shipments, major producers targeted a further $50-100/tonne increase in a bid to claw back margins, which had languished in negative territory. 

“2013 VAM prices were lower by $40/tonne [than the prices in] 2012 so there should be some recovery in 2014 to cover costs,” a northeast Asia-based VAM marketer said.

A China-based VAM trader likewise anticipates stable-to-moderate price hikes in 2014, given that demand from the downstream adhesives sector in China had been steady.

Looking ahead, Asia’s VAM supply and demand is expected to be more balanced in 2014, supported by a combination of VAM plant closures in Europe and Japan and growing demand from the downstream ethylene vinyl acetate (EVA) sector, which has traditionally accounted for 9% of global VAM usage.

New production capacities by LG Chem and Samsung Total in the downstream EVA sector in South Korea is expected to boost domestic VAM consumption.

Global EVA demand growth into 2017 is expected to prevail at an annual rate of around 4.5% since 2011, according to industry estimates, with the anticipated growth of the downstream solar power industry expected to be a key demand driver.

As a result, VAM export availability from South Korea is expected to be curtailed in 2014.

In Japan, the overall operating rates at local VAM plants could increase from the 2013 average of 70-80%, to make up for the exit of producer Denki Kagaku Kogyo (Denka) from the business in the second quarter of 2014.

“Asia’s VAM supply and demand should be more balanced, with the exit of Japan’s Denka VAM plant and Ineos’ Hull VAM plant in the UK,” a northeast Asia-based VAM marketer said.

“Europe [is expected] to attract Middle East VAM cargoes, leaving southeast Asia and India to absorb Dairen’s VAM capacity in Singapore. With the new EVA capacity expansions and plants in [South] Korea, VAM producers in Japan and Singapore may raise their plant operating rates whereas certain global producers will maintain their plant operating rates,” the marketer added.

On the demand side, southeast Asian downstream emulsions producers are hopeful of better capacity utilisation rates in 2014, although political and economic uncertainties clouded their outlook on the market.

“The construction sector is slow whereas the Indonesia rupiah has weakened in 2013 by 17% compared to 2012,” an Indonesia-based petrochemicals distributor said, “this which would affect local companies’ profit margins because finished goods are sold in rupiah.”

“2014 is also Indonesia’s presidential election year which would affect market sentiment in every sector,” the distributor said, “meanwhile, labour costs are rising and our economic conditions are not so good so we are not so optimistic.”

“The outlook for 2014 is hard to say because of weak demand conditions and bearing in mind the demand and supply situation in 2013,” a Thailand-based VAM buyer said.

“There is cost push on producers but they can’t raise prices because demand has been weak but maybe VAM prices could rise after Lunar New Year to the $1,050/tonne CFR SE (southeast) Asia level,” the buyer added.

VAM is a key ingredient in emulsion polymers, resins, and intermediates used in paints, adhesives, coatings, textiles, wire and cable polyethylene (PE) compounds, laminated safety glass, packaging, automotive plastic fuel tanks and acrylic fibres. It is also used in furniture glue and chewing gum.

Most end-use markets for VAM are mature and the growth in the largest applications – adhesives, paints, paper coatings and textiles – are expected only to track, or be slightly below, GDP. However, there are strong growth areas for VAM such as ethylene vinyl alcohol (EVOH) barrier resins, ethylene vinyl acetate (EVA) polymers and polyvinyl butyral (PVB).

($1 = €0.73)

($1 = €0.73)