Taking a closer look at the MMA markets
As part of Lucite International’s (LI) commitment to its customers in the MMA merchant market we share with you our thoughts and views of current dynamics. Local knowledge combined with our global operations that are backed by world-class systems help to ensure the accuracy of this information, which we publish regularly both online and in Freeflow Magazine (see opposite for latest downloadable pdf).
A review of the MMA markets – report: Sept 2012
Volatile’ and ‘uncertain’
These two words capture the state of the European petrochemicals market at the moment, and hence are also very applicable to the methacrylates scene. The characteristics of volatility and uncertainty are making it difficult for both buyers and sellers to plan ahead and to have confidence in the future, even in the short-term. Unfortunately this is a barrier to the recovery and growth that we are all seeking.
Fuelled by a fluctuating but ultimately resilient crude oil price, several petrochemicals and their derivatives have experienced record high prices in the last six months; apparently illogical in these subdued economic times. The speed and magnitude of price movement from crude oil, through naphtha, resulting in triple-digit price movements in olefins and their derivatives is a concern for all those involved, and for anyone who is looking to return predictable and satisfactory margins for their business.
At the time of writing, acetone (driven by propylene) is facing a second major price hike in successive months and, with it, is introducing a serious situation for the manufacturers of methacrylate monomers. The other major feedstocks required for methacrylate manufacture in Europe are perhaps less volatile than acetone, but are all currently subject to upward pressure and therefore providing no relief for the cost base. The development of the cost base is now a major factor for producers when setting production rates and planning appropriate levels of inventory.
The MMA supply side in EMEA has operated well thus far in 2012 with planned maintenance events being completed to time. MMA imports from outside the EMEA region required to satisfy demand have been steady and sufficient so far this year.
There has not been the extreme tightness in the market that was experienced at times over the past two years. It is also a very different situation from the one we experienced in H2 2011, when inventories had been built up primarily in Asia. When demand softened in Q3, this product was suddenly looking for a home in the EMEA region. This time manufacturers in all global regions are rightly being more circumspect about increasing their stock levels and are instead seemingly electing to balance plant rates to match demand. In addition, the Euro has weakened by around 10% against the US Dollar making importing into Europe less attractive now than it was in the earlier part of the year; and yielding better news for European exports.
Year to date, it is estimated that MMA demand in EMEA has been 2-3% lower than for the same period in 2011, however, there have been fluctuations. The most significant of these was the major de-stocking that took place in the second half of Q2 as the European chemicals market took a ‘wobble’ and embarked on a rapid programme to deplete inventory in the anticipation of lower prices and in the face of uncertain demand in H2. This had a profound effect on MMA demand for a period of 4-6 weeks, and while demand has largely recovered in July, it did mean a more abrupt end to the coatings season than is normal and a more subdued July/August period than had previously been forecast.
Activity seems to be picking up again in September (perhaps in part a reaction to de-stocking in Q2) and for October but not everyone has confidence beyond that time horizon. It is also clear that after the actions of Q2, the industry is operating with very little product in the supply chain.
The state of the Eurozone economies looks set to continue for a while. In particular, the lower level of activity in the construction and automotive segments across the major markets in Europe is resulting in a lower growth environment for the immediate future. There are pockets of better news around the region but, unfortunately, these are relatively small in comparison.
The major concern remains the high cost base and the apparent disconnect between the prices of major commodity chemicals and the reality of the world economy.
Volatility and uncertainty – it’s in times like these that suppliers must work even harder with their customers; to communicate, understand their needs, and deliver excellent service. LI will continue to ‘go further’ for all of its customers in EMEA, as it does for those around the world. We are fully committed to ensuring that we continue to deliver the requirements expected of us.