INSIGHT: Seasonal coatings disappointing for glycol ethers and PGE players in Europe

LONDON (ICIS)–Paint and coatings demand has been mixed this year, with a disappointing second-quarter for some players in the European glycol ethers (EGE) and propylene glycol ethers (PGE) markets.

The second-quarter is typically peak demand season for both EGE and PGE, with increased consumption from the paint and coatings industry ahead of summer.

However, the usual uptick in demand expected in the second quarter was delayed due to cold weather conditions in Europe this Spring.

Demand in April remained stable for both EGE and PGE, with steady supply levels also contributing to balanced market conditions.

April demand was lacklustre, and led to stable-to-soft prices for EGE in an attempt to encourage buying appetite.

April spot prices for butyl glycol (BG) were assessed at €1,120-1,180/tonne, and butyl di-glycol (BDG) at €1,390-1,440/tonne FD (free delivered) NWE (northwest Europe).

Although the ethylene contract reference price for April settled at an increase, EGE availability had improved as tightness from the first-quarter eased by April.

This also contributed to the disappointing demand early in the second quarter.

Once warmer weather began to spread across Europe in late May, EGE demand started to pick up and continued to do so for the remainder of the quarter.

Upstream, the cost of ethylene increased steadily throughout the second quarter and hiked in the early third quarter.

Ethylene reached its price peak so far this year in June, settling at €1,150/tonne, an increase of €63/tonne from May.

Due to the slow start to the peak demand season, players expected healthy demand to continue in the third-quarter and for EGE that has been the case.

Although upstream ethylene settled at a decrease of €15/tonne for July, supply constraints and healthy demand led to spot price increases last week. The market remains balanced-to-tight, with BDG tighter in comparison to BG.

As a result, demand for BDG was higher compared to BG and larger price increases were achieved for the grade.

The ICIS assessment valued BG July spot material at €1,160-1,120/tonne (an increase of €10-20/tonne), while BDG was valued at €1,420-1,490/tonne (an increase of €20/tonne) FD NWE.

Meanwhile, PGE demand has been slower in comparison to EGE this year.

Propylene glycol methyl ether (PM) and propylene glycol methyl ether acetate (PMA) availability have been fairly healthy in Europe this year, while prices have been stable-to-soft.

With the exception of di-propylene glycol methyl ether (DPM) which is tight at present, PGE availability remains ample while demand is flat.

Producers described PGE demand as healthy, however, targeted increases in recent months were unsuccessful.

With ongoing balanced supply and demand dynamics, some buyers have found PGE price levels unjustifiable.

PGE prices rose in 2017 on the back of supply shortages. So far 2018 has been a relatively stable year in the European PGE market.

As a result, there has been some pushback to further targeted increases in the market.

However, sellers note increased raw material costs as a reason to target higher spot pricing.

In June, the propylene contract reference price rose by €80/tonne.

Dow Chemical targeted the full raw material cost pass through on all PGE grades, but was unsuccessful.

Other European producers targeted double-digit increases between €20-50/tonne.

For PGE June spot prices a mixture of rollovers and increases up to €40/tonne were achieved, depending on the starting point and the grade.

The ICIS assessment valued PM at €1,480-1,530/tonne and PMA at €1,800-1,850/tonne FD NWE.

In comparison to EGE, PGE demand has been lacklustre.

The hike in raw material prices and the struggle some sellers faced to pass through the cost ratio highlighted the lack of buying appetite for PGE over EGE.

One PGE distributor noted that “there is sufficient volume and demand is normal.”

Players have lamented: “the season is gone”.

In late June one producer mentioned PMA demand was lower than PM, as PMA prices had reached a “plateau”.

While buyers are concerned with the current level of prices, producers are wary of margin compression with upstream propylene.

This month, the propylene contract reference price rolled over and PGE sellers targeted a mixture of rollovers and increases.

Some rollovers were achieved, however there was a price decline, depending on the grade and the starting point.

PM was assessed at €1,460-1,530/tonne FD, while PMA was valued at €1,780-1,850/tonne FD NWE.

As well as paint and coatings, PGE has end-uses in the electronics and agricultural sectors.

These industries are performing well, however, lacklustre buying appetite suggests that the current supply length and market price of PGE have led to lower demand than was forecast for peak season this year.

Additionally, tightness in 2017 and subsequent price hikes may have contributed to sellers’ expectations for 2018.

Traders in particular have expressed disappointment with the market during the second quarter.

As August approaches, the typical summer slowdown in Europe is expected to lead a dip in demand for both EGE and PGE.

Whether this will lead to softer spot prices is yet to be seen, and also dependent on price movements upstream.

Sellers’ targets will come forward once propylene and ethylene settle for August.

Divided in E-series and P-series, depending on whether they are made from ethylene oxide (EO) or propylene oxide (PO), glycol ethers are mainly used as a solvent for domestic and industrial applications such as paints and coatings.

By Eashani Chavda