OUTLOOK '14: Europe acrylates sector aims for year of modest growth

02 January 2014 10:11 Source:ICIS News

By Helena Strathearn

LONDON (ICIS)--It is not easy to paint a clear picture for the European acrylates market in 2014, but most players in the sector are aiming for a year of growth.

With GDP forecasts marginally higher for the year ahead, there is hope that acrylates consumption will see modest gains.

While growth prospects are tainted by caution, the general consensus is that demand has bottomed out, and positive sentiment is expected to return to the sector.

“We’re a bit more optimistic than we were for 2013,” a methyl methacrylate (MMA) seller said.

“Europe should have touched the bottom, and this is definitely a good sign. We feel more confident and more positive… coming out of a couple of difficult years. We need to improve margins, but we are expecting raw materials to keep firm in the new year.”

However, some participants only expect to see significant improvement in 2015.

“I'm less positive,” an acrylate esters producer said. “New capacity seems to be kicking in. I think there will be ample supply, and if demand doesn’t pick up, prices will be under downward pressure.

"Margins are too low… we have not been able to make up for the erosion we had in 2012… I don't see that being corrected in 2014. I expect it to be worse than 2013.”

Margins started to erode in the second half of 2012 when feedstock costs were largely increasing and acrylate prices failed to keep up.

The sector has faced competition from other regions, but one seller thought Asia would have trouble competing with Europe. “It will be hard to export to Europe because players will not offer much room to Asian supply, and they will not be very successful in moving material… not huge volumes that will influence the European market seriously.”

One PMMA producer expects to see a rebound in the automotive sector, as well as in the sheet extrusion sector.

Another PMMA producer anticipates stronger demand in Europe, but said the extent would vary between countries.

“The market balance depends very much on what happens in Asia. While we expect significant growth in Asia, it is unlikely to recover to an extent to consume all local PMMA production, so Europe and the Middle East will remain key export targets for Asian producers. This means the demand upturn in Europe may not fully tighten the market,” it said.

One MMA producer said: “If you look at EMEA [Europe, Middle East and Africa], there is a real diversity of individual economies. Some are doing pretty well, some are facing challenges.

"Overall, we expect modest growth. There will be a lot of shutdowns in Q1 which will make market dynamics interesting. Asian prices are going up. And the market will be tighter… it will move from a balanced-to-long feel, because of better demand, particularly in Asia and the US.”

Despite some negative forecasts from the paint sector, one specialist MMA consumer was particularly positive, estimating it expects to see a 10-15% increase in demand for its business in 2014.

Looking at potential feedstock implications, a few participants said propylene pricing would be fairly stable this year. “If that's the case and demand does pick up a little bit, we should see prices rising,” an acrylates producer said.

“We haven’t got margin to play with,” it added. “The outlook for 2013 was stability. The aim of most people for 2014 is one of growth. It's all optimism with a realistic view. We've all reassessed where those levels should be.”

Initial first-quarter PMMA contract price ideas point to rollovers. Weak demand in a well-supplied market is likely to limit any potential increases from higher costs, and although prices are likely to continue facing pressure from low-priced Asian imports, they are unlikely to fall much as production margins are already poor.

“In quarters two, three and four, we expect prices to go up and to see a cessation of low-priced PMMA from Asia, because these prices are so low, they are not sustainable,” the second producer said.

“I hope it will be a year of low supply and high demand,” the first acrylates producer said. “But I don’t see that happening. The global economy is still too depressed even though there is some recovery. Maybe 2015 will start to show growth. Certainly not before 2015… but who am I to say? I hope I'm wrong.”

Demand is reasonably lacklustre, utilisation rates remain low and players along the supply chain are concerned that ongoing feedstock volatility - along with attractively-priced imports - will continue to squeeze margins.

The outlook for 2014 is only slightly better than it was for 2013. But most participants seem satisfied it is slowly moving in the right direction.

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By Helena Strathearn