OUTLOOK '18: Europe IPA demand has room to rise, price may fall

29 December 2017 13:00 Source:ICIS News

LONDON (ICIS)--Strong demand is expected for European isopropanol (IPA) over 2018 due to the feedstock and economic outlooks, although long-term trends also suggest that prices have further to fall before stabilising.

European IPA spot prices have been higher in 2017 than in 2016, with the strong US market acting as a kingmaker in the first half (H1) of the year and the market being more influenced by domestic tightness in H2.

Average prices were at higher levels in the first quarter, as well as in Q3, than in the previous three years, with only a small relative price reduction in Q4, which suggests that IPA prices may have further to fall before reaching stable levels.

Average Q1-Q3 prices for 2017 are more than 39% higher than in 2016, whilst Q4 prices until week 1 of December were almost 35% higher.

The most comparable recent year to 2017 in terms of prices was 2014, also with significant tightness in Q4 because of production issues at Shell's Moerdijk, Netherlands, plant.

The European solvent markets are very mature, and as a result, producers have announced no new capacity expansions or plants in 2018.

Imported IPA shipments have continued to play a major role in the European market in 2017.

Imports structurally fulfil an estimated 15% of European demand, with the major source being the US, although there have also been iso-tank quantities from Azerbaijan available in Europe in the fourth quarter.

Due to its structural importance, US IPA is expected to continue to play a major role in the European market in 2018.

The outlook for downstream demand is positive overall due to strong growth predictions for the European economy.

The main downstream sectors for IPA – paints, coatings and solvents – are driven by overall trends in GDP due to their links to downstream sectors like construction.

Market sources with predictions for growth in 2018 tended to put it in the mid-single-digits, with one producer estimating overall growth at 6%.

There were mixed views on the expected direction of feedstocks in H1 2018, but the consensus reflected an expectation of higher prices.

The rising interest in shale oil as a basis for feedstock will ultimately lower producer costs and provide them with more control over pricing.

There are proposals for development in the UK and other European countries, with INEOS receiving permission to begin exploratory drilling in Derbyshire early in 2017, although any potential results in terms of production are several years away.

One UK-specific issue, which will affect every chemical market, is the country’s exit from the EU on 29 March 2019.

There were mixed points of view on Brexit in the market, with players forecasting neutral or negative outcomes for the UK economy.

Absent any specific economic factors, this is due to the increased uncertainty which is likely to deter investors over the next two years.

However, the outcome is heavily dependent on unknown factors, such as the success of the UK government in negotiating trade deals with the EU.

Therefore, this represents a major unknown factor in the markets for 2018-2019.

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By Chris Barker