OUTLOOK ’19: Europe acetic acid prices likely to be firm in 2019 on market balance

LONDON (ICIS)–Declining European acetic acid prices are expected to continue their downward trend into the first quarter of 2019 due an acute shortage of material, but players expect a recovery in the second half of the year.

Acetic acid buyers in Europe, however, think that the process of re-balancing in the market has not been adequately reflected by lower prices up to the end of 2018, and there appears to be some acceptance on the part of at least some sellers that further softening will occur in the opening months of 2019.

The extent to which this may happen is still far from clear, as quarterly contracts had not begun to be seriously discussed at the time of writing, and the sell-side seems committed to a “managed” reduction, if one is to be conceded.

One theme that should return to the market to a more marked degree than was apparent in 2018 is the prevalence of feedstock as a guiding criterion in market valuation.

Usually, the quarterly contract price for methanol is a point of departure for acetic acid negotiations.

However, pricing conspicuously decoupled from this reference in a highly untypical period in which supply and demand were markedly out of kilter.

This imbalance has now largely dissipated and the movement in methanol costs will probably resume much of its customary importance, if not primacy, as a driver of acetic acid prices.

An apparent downtrend in methanol numbers also features as an additional factor indicating lower acetic acid values in the first three months of 2019.

Even after further reduction in price, it is viewed as unlikely that the slow process of correction will carry on until prices have returned to somewhere around the levels last seen before the series of unplanned outages prior to Hurricane Harvey late in the summer of 2017.

While a fully balanced market, independent of the methanol input, might imply a return to a status quo ante, this does not seem to be on the cards because the underlying longer-term market balance is now considered to have shifted.

Demand has been gradually growing, and players are aware that no new capacity has come on-stream, or is scheduled to do so.

With just one world-scale plant located in Europe, the continent remains largely reliant on supplies from outside the region and the market will, as before, have to compete with others around the world for a finite volume of supply.

Therefore, even if consumption rises on a trajectory that only mirrors that of background economic growth, enough time has elapsed since any meaningful alteration in capacity available for European consumers to ensure that the era of a “balanced-to-long” market is now over for the foreseeable future.

This is expected to be reflected in rather higher firmer prices as 2019 progresses than was appropriate before 2018.

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Acetic acid is largely used to manufacture vinyl acetate monomer (VAM), which is used in the production of water-based paints, adhesives, paper coatings, films, textile finishes and chewing gum.

Focus article by Peter Gerrard.