European epoxy resins prices under pressure to rise

12 February 2014 10:59 Source:ICIS News

LONDON (ICIS)--European epoxy resins contracts for February have mostly settled at a rollover from January, despite several sellers having pushed for price increases, in search of margin improvement.

A European epoxy resins producer said: “February was very difficult to raise prices as the main players are making rollovers. There is a push from raw materials leading us to raise prices. In some areas we were able to raise prices. The trend is to increase by €50/tonne for solid epoxy resins (SER). The liquid epoxy resins (LER) situation is worse – there is a lot of competition, everyone wants to allocate volumes.”

Buyers broadly rejected price hikes as the European market is oversupplied, competition remains strong and demand is off-peak.  A buyer said: “Demand is very low, so how can producers implement an increase? One [producer] will agree not to increase prices to secure volume.”

Another buyer said: “Some producers need to raise prices, unfortunately, demand is not there for the moment.”

European suppliers had sought February price hikes because rising feedstock cost pressure and months of competition with cheap Asian imports have eroded margins. An epoxy manufacturer said: “Since six months we have seen prices decreasing step by step. The margins for epoxy are terrible and you can see this in the financial results of every company.”

Sources indicated that suppliers are approaching the problem of stiff competition with cheap Asian imports in two ways. Initially, European suppliers had sought to combat the cheap imports and protect their own volumes by competing on a price level. Now, however, margins are widely regarded within the market as unsustainably low, and a few producers are looking to hike prices and improve margins while sacrificing volume.

A European producer said: “At the moment, overall expectations are for prices to go up. Prices from overseas did not go up much until now, so everybody is trying to take advantage of that. European producers are going back for market share.”

This has resulted in a very wide range of European epoxy resins prices and sell-side sources have confirmed a price spread of over €200.

Nevertheless, over the past few months, several sellers said they have been unable to push through price hikes aimed at improving margins as buyers have balked at the prospect. Buy-side resistance to price increases has been strong, with many consumers not only complaining that their margins are also under pressure, but noting that they too are facing difficulty in passing on cost increases.

A European producer said: “We announced [a significant] increase for February, [however] we did not increase anywhere significantly. We did try. It’s still on the table for March.”

Sources indicated that the bulk of price increases are being absorbed by smaller consumers with less purchasing power, while larger buyers escape with mainly rollovers. One European supplier indicated that the price spread for free delivered to northwest Europe (FD NWE) standard liquid epoxy resins contracts ranges between €2,000/tonne and €2,280/tonne, depending on the size of the customer.

Another producer said: “There is difference between small and big customers. Big players have advantage. Because of big overall demand, they have strong negotiating power. On the other hand, it means that the prices for them are fixed with all kind of arrangements, quarterly, fixed forward, or formulas. For smaller players that  negotiate every month, prices are definitely up. But it also depends very much on the starting price. The lowest to highest difference may be in extreme cases €200. Of course it is strong trade between volume and price.”

The situation may, however, be about to change, following announcements by large Asian epichlorohydrin (ECH) producers that they are seeking to raise prices by about $250/tonne, after rising feedstock cost pressure thinned margins.

Negotiations between the Asian suppliers and buyers are ongoing, but the suppliers appear determined to enforce the increases.

As a result, European epoxy suppliers are hopeful that the Asian ECH price increases will be enacted as this would reduce the pressure weighing on European prices. Higher Asian ECH prices are anticipated to result in higher Asian epoxy resins prices. Higher Asian epoxy resins prices would diminish the export incentive and leave European producers more able to raise domestic prices, recover margin and increase their volumes.

A European ECH producer said: “From a European perspective, if Asian ECH producers’ prices rise, it will be interesting to see how they will tackle the exports. It could narrow the export potential. It could affect demand in Europe. Since 2012, imports to Europe have meant domestic European producers have produced less.”

By Iain Packham