OUTLOOK ’19: Growing domestic supply, imports to lengthen Europe etac market

LONDON (ICIS)–The European ethyl acetate (etac) market is likely to experience lengthier supply and lower feedstock costs in 2019, though the impact of Brexit on the market is uncertain.

A capacity expansion at INEOS’ Hull plant in the UK is set to place production capacity at 335,000 tonnes/year in 2019.

A maintenance turnaround was completed in August 2018, according to market sources, and greater availability since the producer returned to typical levels of spot activity in mid-September drove softening prices to the end of the year.

INEOS did not comment on its production rates or the status of its expansion project.

Increased domestic supply could result in fewer periods of tight supply – which are the key source of upwards pressure on etac prices.

However, as the majority of domestic production in Europe comes from one site, supply is vulnerable to disruption from maintenance turnarounds or unplanned shutdowns.

IMPORTS
There is the potential for growth in import volumes as well, though Europe may become a less attractive export destination if increased domestic supply results in downwards pressure on prices.

In the short term, Celanese exports to Europe may be limited by production issues at its Mexico plant, though it will remain a major exporter to the region during 2019.

Sipchem will be a new player in Europe as from January 2019 the company will be marketing its material in Europe. Prior to this, material was sold and distributed by Solvay under an exclusive agreement.

While import volumes from Sipchem are expected to remain stable at 35,000-40,000 tonnes/year, overall volumes could increase if Solvay looks to bring material from elsewhere in order to maintain the market share it established under the previous agreement.

Imports from Asia are also likely to continue at a steady rate, with monthly volumes increasing when the arbitrage between Asian and European prices widens.

Exports from the US greatly increased in 2017 and 2018.

Though volumes were still relatively small, distributor Helm’s off-take agreement for global marketing of material from the Prairie Catalytic unit in Columbus opens the possibility of further growth for this trade flow.

ACETIC ACID COSTS
Etac pricing is largely driven by supply and demand conditions, but in 2018 it was also impacted by rising feedstock acetic acid costs.

The mid-point of monthly contract prices for acetic acid rose more than €300/tonne between December 2017 and the peak reached in July 2018 on the back of tight supply caused by a series of unplanned outages.

Acetic acid prices fell between September and December and are likely to continue to soften into 2019, but they not expected to return to the 2017 levels, before prices started rising.

This may support etac prices, as the graph below shows the margin between spot etac and acetic acid prices was smaller in December 2018 than in late May, when acetic costs and tightening supply drove price increases.

However, supply and demand will remain the dominant influences on etac pricing with only limited pressure caused by feedstock costs.

BREXIT-RELATED UNCERTAINTY
The effect of the UK leaving the EU will depend on the agreement reached on the two parties’ future trading relationship.

If free movement of goods is maintained, then the impact will be limited.

A no-deal scenario, however, could result in logistics disruptions, particularly immediately after the leave date, and the 5.5% duty on third countries will be applied to material from INEOS going into Europe.

Over 100,000 tonnes of etac is typically exported annually from the UK to the rest of the EU, and INEOS’s increase in production capacity is likely to drive this even higher.

An additional cost at a major producer could put upwards pressure on pricing, though imports from other third parties are already subject to this duty and are sold in line with European prices.

Etac is used in coatings, pharmaceuticals and solvents.

Focus article by Nick Cleeve

Additional reporting by Peter Gerrard