OUTLOOK ’19: European VAM market to be adequately supplied

LONDON (ICIS)–Conditions in the European vinyl acetate monomer (VAM) market at the end of 2018 are unlikely to disappear in early 2019, meaning that the market will continue to be well supplied, moving into the New Year.

Demand will likely be subdued in the opening months of the year on the back of seasonal factors.

There is plenty of anecdotal evidence that most converters decided to run down their stocks in December. Again, this is far from abnormal, as these companies strive to enter the New Year with working capital in an ostensibly healthy condition.

An additional factor is the suspension of EU import duties. Although no official announcement had been made as late as mid-December, the market is expecting a renewal of the 350,000 tonne quota of imports exempt from the 5.5% tariff.

The duty suspension is by now anticipated on both sides of the market, and producers are likely to adopt tactics that minimise the pressure to pass on the saving to customers.

Nevertheless, unless the market were tighter than appears to be the case at the end of 2018, buyers will in a position to abstain from early purchases, in order to gain some leverage on prices.

This potential leverage resulting from the duty suspension is short-lived. The suspension is a one-off cost cut and importers know that the quota is sufficient to last almost to mid-year.

Around that time, the volume of imports and available supply is likely to surge, but that will also be foreseen and therefore may not have more than a minor effect on values.

It is now more than a year since INEOS announced that it intends to open a 300,000 tonne/year facility somewhere in Europe, scheduled to come onstream in 2020.

The company failed to inform the market in 2018 where the new plant will be sited, but it is believed that the project will still move on from the planning stage, even though the location decision has been deferred.

Before that, Celanese will have increased its capacity by some 150,000 tonnes in Clear Lake, Texas. While additional capacity in another region of the world need not have the same impact on the European market as a new venture producing within the continent, any effect on supply will be felt in 2019.

It is not presently known whether the INEOS plant will be constructed in the UK or elsewhere.

In March 2019, the country is expected to exit the EU and it is therefore unclear whether its output will be subject to import tariffs once it starts to sell to European consumers.

Brexit is one of the unresolved issues clouding visibility over the next twelve months, another being the unpredictable path the US-China trade dispute takes.

Some market participants are decidedly gloomy about the prospects for the economic background in 2019, although others believe that concerns are over-stated and that less rapid growth is a more probable outcome than a recession, allowing for potential challenging times in specific areas such as the automotive industry and EVA sector.

Focus article by Peter Gerrard.