OUTLOOK ’14: Asia acetic acid values to track firmer feedstock

By Helen Lee

SINGAPORE (ICIS)–Asia’s acetic acid prices are expected to mirror the bullish outlook in the feedstock methanol market in 2014, although further price gains would depend on acetic acid supply curbs, market sources said.

Acetic acid prices made moderate gains for the most part of 2013, largely driven by tightened supply owing to a spate of planned and unplanned plant outages.

“Unless major suppliers have production issues, we don’t see any price increases,” a non-Asian acetic acid producer said.

“Methanol prices have been high in 2013 hence acetic acid suppliers can’t reduce prices, but there is limited upside too because there’s too much supply hindering us from transferring costs downstream,” ther producer added.

In the latter half of 2013 however, tight supply-driven feedstock methanol price spikes, since late in the third quarter, propelled acetic acid prices to two-and-a-half year highs of around $600/tonne (€438/tonne) CFR (cost & freight) Asia by late December.

Some acetic acid producers had shut down their plants or reduced the operating rates in November owing to escalating costs, prompting some buyers to brace for prices to spike to $700/tonne CFR Asia by end-January 2014.

A lack of new acetic acid plant capacities in 2014, coupled with demand growth from the downstream solvent acetate and purified terephthalic acid (PTA) sectors in 2013, is generally expected to bolster acetic acid spot prices next year, supporting the bullish outlook.

Next year [2014] may be better because there are no new acetic acid plant capacities, a key southeast Asia-based distributor said. “There is in 2013 a severe oversupply, but hopefully 2014 will be a little better as demand is growing.”

Several new PTA plants are expected to come onstream in 2014 in China and India, whereas acetic acid projects are slated to come onstream in 2015 –  mainly in China and India.

Nevertheless, political and economic uncertainties in some parts of southeast Asia clouded some buyers’ optimism.

“Acetic acid supply may tighten but consumption may also reduce especially in Indonesia and Thailand because of weak buying power,” the distributor added.

Indonesia’s presidential elections in 2014 is widely expected to impact sentiment in all business sectors whereas the depreciation of the Indonesian rupiah versus the US dollar, coupled with rising labour costs, added to acetic acid buyers’ woes.

“Even if we raise our product prices, the market may not absorb it,” a southeast Asia-based acetic acid end-user said, fuelling fears that it may need to permanently idle or convert its plant in 2014 amid struggles with rising raw material costs.

“Acetic acid producers have to do something to keep their customers, for example, developing new technologies,” suggested the buyer.

“We’re not sure if price increases in the first quarter can be sustained because demand and market conditions are still [not] good,” a Thailand-based importer added.

Meanwhile, some market players are hopeful of a reversal in the acetic acid price uptrend on the prospect of easing tight methanol supply from southeast Asia and the Middle East, which was previously caused by planned and unplanned plant outages.

“Usually, methanol price is not a key influence on acetic acid prices but now, the latter will track methanol closely,” a key Chinese acetic acid exporter said, adding that the long-term outlook on acetic acid prices will depend on the recovery of methanol supply to Asia from the Middle East.

The balance between supply and demand would also have to be maintained at a level conducive for cost transfers downstream, other suppliers added.

“Acetic acid prices in 2014 won’t fare worse than this year but they won’t be that good either because Chinese producers are operating at reduced rates,” a major Chinese producer said, adding that local producers may cap plant operating rates at below 70% capacity in 2014, because otherwise, supply will again outstrip demand.

($1 = €0.73)