OUTLOOK ’19: Europe acrylate esters, AA outlook clouded by propylene concerns

LONDON (ICIS)–European acrylate ester and acrylic acid (AA) players are focused on the upstream propylene market for 2019.

Currently, margins are poor and there are concerns over propylene supply during the planned heavy cracker shutdown schedule in the spring.

Continued increases in propylene prices, which is the key feedstock for acrylate esters and AA production, have compressed margins.

The triple-digit drop  in the December propylene contract shocked acrylate players further, with many struggling with the continued volatility this has brought to the market.

December contracts are being agreed at a double-digit decrease, with buyers unable to achieve the full propylene pass-through.

“It is difficult to get the full pass through for prices, we did not get the full pass through when prices were increasing, so we will not see the full decrease now,” said one acrylate buyer.

This highlights the compression of margins this year, with it widely accepted that the market is not attractive for investment at current pricing levels.

The main concern is over the impact on sustained upward pressure from propylene, with propylene expected to remain in a balanced-to-tight position longer term.

While some are concerned over the spring cracker stoppages, others are confident that the contractual agreements that are in place will cover the market during that time.

“I am less concerned about propylene than I was two months ago, there was a lot of buzz on propylene tightness at one stage,” said one producer, with renewed confidence for some players given the recent lengthening in upstream supply.

“Acrylate producers are paying good prices for propylene compared to polypropylene (PP) sellers. I am not afraid, I was but now [I’m] more relaxed,” the seller added.

Reliability of ageing European assets and logistical constraints have dominated acrylate discussions for the second part of the 2018.

Water leves on the river Rhine became the hot topic of the year, with many players questioning when levels would improve.

The rain dances in Germany paid off in December though, with a sharp increase in water levels and a flurry of force majeures lifted for BASF at Ludwigshafen.

The force majeure for BASF at Ludwigshafen, Germany remains in place for 2-ethylhexyl acrylate (2-EHA), with the declaration on butyl-acrylate (butyl-A) and ethyl-acrylate (ethyl-A) lifted on 1 December.

There remain concerns over the logistical chaos in Europe from lower water levels on the Rhine for 2019, which would be even more detrimental during a high demand period.

Out of all of the esters, 2-EHA seems the most vulnerable to supply constraints, given the level of consumption for this ester, and also the smaller amount of producers compared to butyl-A.

“The tightness on 2-EHA is masked by the year-end factor, but there will be a distinct difference in January… it only takes one site to fall down to take it to short,” said one producer.

This was evident in 2018, with 2-EHA being the only ester that availability became an issue for during the recent BASF force majeure, and spot prices hitting a five-year high.

Supply will remain a key topic going forward for the acrylates market, which is lacking in further investment, as the ageing European assets are stressed further by continued growth.

Overall growth is expected at 4%, with levels in the super-absorbent polymer (SAP) market continuing to shine, with an 8% increase expected globally in that sector.

AA is used as a raw material to make SAP for the manufacture of disposable nappies, surgical pads and other personal care items.

Acrylate esters are used to make paints, coatings, textiles, adhesives, polishes and plastics; and they include methyl acrylate (MA), ethyl acrylate (EA), butyl-a and 2-eha.

Growth is also expected from the coatings sector at around 1-2%, despite the pessimism across Europe amid wide spread economic uncertainty.

“We are often impacted by short term sentiments like Trump and China, but I believe consumer demand is still strong,” said one trader.

“I still believe that people are ‘over-egging’ the pessimistic view. We are still seeing people who are having normal activity and are expecting good activity next year when questioned more deeply,” said a separate European seller.

While demand growth is something players are confident about for 2019, concerns over upstream cost pressure, and supply issues continue to shroud the market with uncertainty at the start of the new year.

Spring is set to be a challenging time, with the first test to the European infrastructure and supply levels expected during this high demand period.

Focus article by Katherine Sale.