OUTLOOK ’18: Europe CX buyers expect supply relief to continue into New Year

03 January 2018 10:00 Source:ICIS News

LONDON (ICIS)--European cyclohexane (CX) buyers are expecting steady supply levels to continue into 2018, following a year of persistent market tightness.

The closure of SABIC’s Wilton 330,000 tonne/year facility in the UK contributed to the European market’s reliance on imports to satisfy demand this year.

Additionally, at the start of 2016, CEPSA announced it would be reducing operating rates, cutting output by 50,000 tonnes/year at its Huelva, Spain, facility.

In 2017, the producer’s output remained reduced to 130,000 tonnes/year out of the possible 180,000 tonnes/year. No date was given for the ramp up.

Imports from the US and the Middle East made the largest external contribution to the European market in 2017, with approximately 110,000/tonnes received from the US, and 140,000/tonnes received from Saudi Arabia between January and September.

In the second quarter of 2017, players were concerned with operations at Chevron’s facility in Al Jubail, Saudi Arabia, commenting on possible supply limitations.

Though the producer did not confirm CX production problems, it stated that issues with work permits and raw materials had impacted its operations in July.

According to import statistics, there was a decrease in European imports from the Middle East in the first half of the year. However, imports increased after this time.

Furthermore, imports from the US have doubled in comparison to 2016 levels, lessening the shortfall in the European market.

Though the impact of Hurricane Harvey on US production led to import delays in the third quarter, the fourth quarter has seen stability growing in the market, with dynamics becoming balanced globally as 2017 ends.

Looking forward to 2018, the buyers’ view of the market is optimistic. Supply levels have grown in recent months, with buyers noting healthy demand being met by balanced supply.

In 2016, BASF announced it would be reducing its caprolactam (capro) capacity by 100,000 tonnes over an 18-month period. This is expected to bring some relief to the CX market in 2018, where demand has remained healthy to strong throughout 2017.

Supply and demand dynamics lead discussions for the quarterly delta contract price settlements.

The monthly CX contract price comprises the sum of the monthly benzene contract and the quarterly CX delta contract.

The CX delta contract price rose significantly during 2017, reaching its peak of €170/tonne in the third quarter.

This marked the second largest increase in recent history, following the 2014 third-quarter delta which settled at €176/tonne.

Whereas the 2017 fourth-quarter delta contract price fell by €5/tonne to €165/tonne, the first decrease of the year.

Quarterly delta contract settlements (€/tonne):

DATE 2017 2016 2015 2014
Q1 132 130 149 156
Q2 143 136 144 159
Q3 170 129 141 176
Q4 165 126.5 133 159

Negotiations for the 2018 first-quarter delta contract settlement began in the week commencing 18 December.

At the time of writing, an initial settlement had been agreed by two sellers and one buyer at an increase of €5/tonne from the previous quarter.

Meanwhile, downstream demand in 2018 will likely remain healthy. The adipic acid market is expected to remain balanced to tight, while capro demand is expected to grow along with nylon 6.

There may be a surplus of nylon due to capacity expansions in Europe this year.

The majority of CX is used in nylon production, widely used in sectors like carpets, furniture, car tyres and airbags, engineering resins, sportswear, ropes and performance fibres, among others.

By Eashani Chavda