OUTLOOK ’18: Choppy waters still ahead for global MMA after 'perfect storm' in 2017

22 December 2017 12:55 Source:ICIS News

LONDON (ICIS)--The global methyl methacrylate (MMA) market is bracing itself for more disruption in 2018 after an unprecedented 2017 left prices soaring amid higher demand worldwide and production problems.

As the year progressed, production outages globally became a frequency in the market, with no new capacity on stream to relieve the ever-growing tightness.

The crippling shortage was felt throughout the value chain, with buyers having no choice but to stop production, for a number of weeks in some cases.

Spot prices hit an historical high in June, and then once again in October, €500/tonne higher than the previous all-time high of 2010.

Therefore, after the ‘perfect storm’ that was 2017, the question for many is will next year be less eventful for the global MMA market.

While market conditions may be easing, compared to the extremes of June and October, there will still be further challenges to come next year.

Concerns are swelling over supply in the first-half of the year, with the global market expected to remain imbalanced until mid-2018.

Although spot prices softened going into December, as players started to wind down for the end of year, they still remain higher than the previous peak of 2010.

With spot prices jumping on a triple-digit basis weekly, many buyers found little relief here, with trade flows drying up at times as inventories depleted globally.

ABSENT IMPORTS
Europe traditionally receives product from the US, Brazil and Asia. However, with consistent planned and unplanned outages, volumes have been reduced for much of 2017.

German producer Evonik implemented sales controls in Europe in February, and experienced both planned and unplanned production outages at times this year.

Lucite International implemented sales controls for MMA in March, and declared force majeure in Europe in September, lifted only in November.

With a lack of imports, and continued production hiccups in the region, prices increased sharply, with a 67% increase in monthly contracts between January and November.

The global upturn in prices first started in April 2016, when Asian prices firmed.

The series of outages came at a time that demand was higher than anticipated, especially in countries like South Korean and India.

There were also a series of lengthy production problems in the US, with Dow Chemical running at a reduced rate for half of 2016, further force majeures for Lucite International in the region, and stoppages at Evonik’s facilities.

SAUDI RELIEF?
The global supply balance was only strained further by the lack of new capacity, with the Saudi Methacrylate’s (SAMAC) plant initially expected to be online mid-2017.

The 250,000 tonne/year plant is a joint venture between MMA major Mitsubishi Rayon (MCR) and newcomer to the market SABIC.

The plant was still in the later commissioning phase in late December 2017, with volumes expected to start arriving in Europe late in the first quarter.

In Europe, the upcoming stoppage for Lucite International at its 200,000 tonne/year Cassel, UK facility in the main area of unease.

The producer will have a two-month stoppage at the end of the first-quarter, with the seller currently preparing stocks.

This will also impact the methacrylic acid (MAA) market, with supply tightening in this sector faster, with less producers and the product harder to store.

Although inventories are being prepared for the stoppage, the constraints that have plagued the market are still very much fresh in buyers’ minds.

The spot market was quiet throughout December, which will impact the volumes arriving in Europe in the new year.

Given the volatility in prices, traders have been moving product on a back-to-back basis for much of the year.

Demand is also expected to start the year healthily, with the plastics sector in particular expected to start hard in the new year.

Overall demand is expected to have a growth rate of 3% in 2018, which is similar to the estimation in recent years.

This is a conservative view, with some players seeing an annual growth of 4-5% in the last two years.

There are certain applications that will significantly outperform this, with double-digit growth expected from some plastics and adhesive uses.

Automotive demand continues to drive growth in the polymethyl methacrylate (PMMA) sector, and light-based applications continue to shine.

As the automotive sector continues its pursuit to light-weight vehicles, PMMA continues to make gains, with 10-20% growth expected in 2018.

However, the buoyant outlook for demand only adds to reservations over supply, and also compressed margins for buyers.

Buying strategies are expected to change next year, with many looking to increase their amount of suppliers, in order to mitigate the risk for any future production problems.

A number of buyers said they would be increasing the volumes under contract, to avoid the soaring prices on the spot market.

The dramatic price hikes seen this year should result in more investment in plants, which in turn would reduce the amount of outages compared to this year.

However, while producer margins are currently high, buyers continue to cite profitability issues, with many unable to pass on the extent of the increases onto customers.

In the PMMA market, this has resulted in some buyers seeking alternatives, for example polycarbonate (PC) and polyethylene terephthalate-glycol (PETG), with the latter currently significantly cheaper.

However, this is not possible for all applications, especially the automotive sector, with strict approvals in place for materials.

MMA players have also had to battle with rising geopolitical tensions, with many more concerned over Donald Trump and Brexit than they are over supply for next year.

After a year of extremes, 2017 ends with calmer waters for MMA players, but for the first half of 2018 it is likely to be anything but smooth sailing.

Pictured above: A weather monitoring satellite orbiting over a storm
Source: John Pulsipher/imageBROKER/REX/Shutterstock

By Katherine Sale

By Katherine Sale