OUTLOOK ’19 INTERACTIVE: Europe MMA players cautious despite improved reliability

LONDON (ICIS)–European methyl methacrylate (MMA) players remain cautious for 2019, despite improved reliability and re-balancing in global supply.

2018 was a tale of two halves, with the first dominated by global outages, and the second with the market turning as supply in Europe finally eased.

It has been a turbulent few years in the MMA market, with prices at historic highs globally at the start of 2018 after a series of planned/unplanned outages.

2018 for many was the calm after the storm, but it still had its moments – a long shutdown for Lucite International at Cassel, UK followed by a force majeure declaration in May, and Evonik running both of its German plants at reduced rates since October because of historically low river Rhine water levels.

After recent years, European MMA buyers are experts at handling production issues, and were well prepared for the recent hiccups in the market.

There was no panic in 2018, with buyers heavily contracted with a wide number of suppliers, to reduce exposure to the spot market at times of outages.

Despite the easing of global supply constraints, and the widespread investment/maintenance that took place in 2018, purchasers remain cautious for 2019, with outages of recent years still fresh in players’ minds.

“With the bad experiences we have had there is more of a tendency for contract rather than spot, even though we are not expecting issues,” said one buyer.

“People have learned and walked away from the spot market. There is more confidence in contracts,” added a second buyer.

“People have not forgotten about the big outages in 2017 that will not change in 2019. Maybe after that when people have put 2017 to the background and become more opportunistic,” said one trader.

The shift in purchasing strategies is changing the market particularly for traders that have had to adapt and plan longer term, rather than operate in the short-term more opportunistic sphere.

“We move away from real trading and move towards distribution. We move closer to producers to know what business we can expect and then customers know what to expect with us,” said one European trader.

Working closer with European producers is one strategy for re-sellers, while others are looking at establishing closer relationships with overseas sellers.

In order to do this and also to guarantee volumes will be available in Europe, investments in storage would be required, and this is another area that European re-sellers are looking into.

The work done by sellers to secure continued future business highlights the power shift in the market, with buyers starting 2019 on top.

While new capacity in the Middle East did not have the anticipated impact on global supply that was expected in 2018, imports from Saudi did start to put pressure on spot prices in the second half of the year.

A lot of the volumes from the Saudi Methacrylate’s facility were used to support other global facilities during times of maintenance by Mitsubishi Chemical (MCC), with the producer well established as the world’s largest producer.

SABIC is the other part of the joint venture on the 250,000 tonne/year facility, and is expected by the market to have a higher percentage of the output in 2019.

The joint venture is a 50:50 agreement, but the exact timings of that are confidential.

MMA prices are largely driven by supply and demand dynamics, with the increases of recent years far surpassing any feedstock changes.

Buyers have used every tool in their arsenal to drive down prices, from what was an historic and unsustainable level for the market.

Downstream margins were compressed from the increases in 2017, with concerns over profitability in both the plastics and coatings sectors, along with worries over longer-term damage to growth in the market.

Heavy industry de-stocking took place because of this, with some starting the exercise as early as June in anticipation of lower prices.

This was a more extensive exercise for those in the plastics sector that were able to reduce inventory for expensive finished sheets.

Consumption remained restricted in the last quarter of the year, with hand-to-mouth buying prevailing, as purchasers held out for further pricing drops.

There are some questions marks over demand for 2019, given the pessimism and general uncertainty over the economic growth.

“The real question is what is happening and what is the underlying cause of the current low demand? Is it businesses working down stocks because people are expecting price decreases in the first quarter,” said one seller.

Many expect a clearer picture of underlying demand in the first quarter, with a strong uptick expected given the low stock positions for purchasers.

“We still plan growth in 2019, I believe February is the moment of truth to see how the market develops,” said one European producer.

There are a number of questions over demand in Asia, with levels softening to a greater extent than expected in the end of 2018.  Asia consumes approximately 58% of MMA globally, and as 2016 showed, has the ability to completely alter global dynamics.

A lot of the outlook for 2019 rides of the demand pick up in Asia for Lunar New Year.

“It is not written that MMA supply will be long or short. Even if demand in Europe is good, bad demand in Asia will lead to a weak market and lengthening supply,” said one producer.

Brexit will also have some impact on businesses in the MMA chain, with many preparing stocks in the fourth and first quarter, and looking at storage to deal with any expected logistical difficulties.

MMA traditionally grows by 3% globally, with higher demand for certain applications.

Coatings producers in the US have reported growth between 5.5-6%, with robust growth expected for the next five years.

There is also growth above GDP expected for the adhesive and automotive sector, despite a slowdown in growth observed for the latter in 2018.

Global MMA players await news on the sale of Evonik’s methacrylate business, with the mystery buyer expected to be announced in early 2019.

The impact of the sale on market remains unclear, but players are expecting a longer-term investment in the industry.

Longer-term sustainability of prices remain a key topic in the market, with complaints over downstream margins continuing at the start of 2019.

While buyers remain cautious, reliability is expected to be higher in 2019, with more uncertainties surrounding the demand picture than supply.

Focus article by Katherine Sale